Corporate governance effectiveness during institutional transition

Is corporate governance effective during the early stages of transition from central planning to market? If so, is the effectiveness due to the newly instituted reforms, or the remnants of the previous institutional regime? This study addresses these questions by drawing on agency theory and neo-institutional theory to examine the effectiveness of corporate governance during transition in the largest of the transition economies, the People's Republic of China. We choose a period of institutional upheaval—1998–2003—and test competing hypotheses with a sample of 416 publicly listed firms. We find strong evidence that poor-performing CEOs are more likely to leave or be dismissed which suggests that China's corporate governance was effective during this time period. However, the results also suggest that the effectiveness was likely due more to the remnants of the previous institutional regime than to the newly implemented Anglo-American style governance structures.