Corporate Governance of Chinese Fund Management Companies

Extending the current literature’s focus on how the characteristic of the board in mutual funds in U.S. may impact on board effectiveness, our study on Chinese FMC at the firm level also incorporates new analysis of the impact on board effectiveness from shareholding structure and the unique China governance management of the supervisory board. Using panel data of 288 firm-year observations covering more than 97% of FMC in China over the period from 2006 to 2010, this paper aims to address governance issues of FMC in China’s regulatory context by investigating the key governance variables and empirically testing their impact on the effectiveness of the board. It examines what governance mechanisms enhance board effectiveness under the contractual form of China’s FMC. In China, FMC BOD is mandated to protect the interests of investors. It could be argued that board effectiveness under the contractual form is a more important issue than it is under corporate form or conventional listed company because fund investors are not FMC shareholders and there is a lack of fund investor representation in the governance of FMC.Our results suggest that the presence of a listed company being a controlling shareholder, smaller board, board with greater independence, a female being CEO or board chair, and the presence of remuneration committee all enhance board effectiveness, whereas the level of shareholder concentration and increasing shareholding from state-owned financial companies has no governance impact. We also provide evidence that increasing the number of females on board harms board performance.