For rating purposes, evaluation was based on five OECD categories. These include rights of shareholders, equitable treatment of shareholders, role of shareholders, disclosure and transparency and board responsibilities and composition.
Research was based on the perspective of outside shareholders information publicly available when making investment decisions. Data sources included annual reports, articles of association, memorandums of association, notices to call shareholder meetings, annual general meeting minutes, company websites, analyst reports and other sources available to the general public. Professor Cheung and his team also set out to establish how many independent non-executive directors sat on company boards.
He said high profile corporate scandals across the globe have highlighted the importance of effective corporate governance – the policies and practices that determine how a corporation is operated and governed.
Professor Cheung's research differed from other corporate governance reviews by specifically adding quantitive elements in order to access the amount and quality of information available. Each company was rated twice by different raters with the final results crosschecked by an audit team.
Further research revealed overseas-listed Chinese companies tend to focus more on stakeholder relationships, transparency and discloser than non-overseas listed companies. "Fairness, transparency, accountability and responsibility are the fundamental pillars that underline good corporate governance. Taking this a step further, good corporate governance translates to timely, truthful and reliable disclosure on companies’ financial position, performance and the way they mitigate risk," said Professor Cheung.
"In terms of disclosure and transparency investors have become more demanding. Today, investors and companies around the world look beyond their shores for investments and capital. As such, companies, markets and even economies are being benchmarked against international standards and investors' demand that these standards be met before they invest in these markets.
Professor Stephen Yan-leung Cheung
Department of Economics and Finance
City University of Hong Kong