Skip to main content

Advertisement

SpringerLink
Log in

Does Corporate Governance Enhance Common Interests of Shareholders and Primary Stakeholders?

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

An Erratum to this article was published on 17 October 2016

Abstract

Employing a unique dataset of Chinese non-listed firms, this paper investigates the effects of the presence of 19 governance structures on 20 employees’ interest indicators. In general, we find that firms with the governance structures pay workers higher hourly wages, require less monthly working hours, and have a smaller chance of wage arrears. Meanwhile, the shares of total wage and welfare expenditures in total sales revenue are lower in these firms, which results in higher profitability. Moreover, firms with the governance structures invest significantly more into training and provide employees with better fringe benefits. Considering the low labor protection standard and the weak external regulations of China’s labor market, we explain the positive findings thusly: corporate governance structures induce managers to adjust wage payments to the “efficiency wage” level, which is the best balance point for the interests of both shareholders and employees and, therefore, for maintaining the stakeholder relationships. We also find the governance structures that give blockholders superpower are negatively associated with employees interests. These results highlight the importance of giving enough discretion to managers in order to successfully find the common ground for creating mutual values for shareholders and employees.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8
Fig. 9
Fig. 10

Similar content being viewed by others

Notes

  1. Blau’s model of exchange hypothesizes that there will be equivalent rewards net of costs on both sides of an exchange.

  2. The survey asked managers about the average monthly wages of white-collar and blue-collar workers and their monthly working hours. We obtain average hourly wages by dividing average monthly wages by monthly working hours. In this paper, we only report the wages and working hours of the blue-collar workers because they consist of the bulk of the employees. The average wage of blue-collar workers and that of white-collar workers are highly correlated. Their correlation is 76.4 %, with 1232 observations and at the 1 % significance level.

  3. This high number is not abnormal. Chan and Siu (2010) conducted a survey in 2006 in a toy factory and a garment factory that provided supplies to Wal-Mart Stores Inc. and found that the average monthly working hours of their sample workers were 302 h.

  4. This is a smelting plant in Jining. It is not like an idle plant because its monthly wage is 900 yuan per worker, which is 85 % of the average monthly wage in the sample.

  5. They argue that corporate law in Europe makes it more difficult and costly for “close corporations”—a smaller corporation whose shareholders and directors are able to operate much like a partnership—to avoid onerous legal requirements as compared to the United States. But they continue to argue that the proliferation of close corporations suggests that ultimately, firms are able to sidestep these difficulties with relative ease so that corporate law is, in this context, trivial (p. 32).

  6. Zhong (2015) presents and tests seven hypotheses regarding the differences of governance between domestic private firms (DPEs) that were transformed from SOEs and DPEs that have not experienced privatization, thereby providing detailed discussions on the factors affecting governance development of Chinese non-listed firms.

  7. Here is the website of a previous version: http://www.lepp.zju.edu.cn/upload/2013-05/13053119175200.pdf.

  8. Note that this argument may well apply only to non-listed firms that generally have concentrated ownership structure. Some studies on listed firms reach the opposite conclusion. For example, based on qualitative case studies on seven UK listed companies, Deakin et al. (2002) claim that “prevailing patterns of dispersed share ownership and rules of corporate governance appear to constrain the ability of managers to make credible, long-term commitments to employees of the kind needed to foster effective labor-management partnerships” (p. 335).

References

  • Adams, J. S. (1963). Toward an understanding of inequity. Journal of Abnormal and Social Psychology, 67(November), 422–436.

    Article  Google Scholar 

  • Akerlof, G. A., & Yellen, J. L. (1990). The fair wage-effort hypothesis and unemployment. The Quarterly Journal of Economics, 105(May), 255–283.

    Article  Google Scholar 

  • Becht, M., Bolton, P., & Röell, A. (2003). Corporate governance and control. In G. M. Constantinides, M. Harris, & R. M. Stulz (Eds.), Handbook of the economics of finance (Vol. 1, pp. 1–109). Atlanta: Elsevier.

    Google Scholar 

  • Berle, A. A. (1931). Corporate powers as powers in trust. Harvard Law Review, 44, 1049–1074.

    Article  Google Scholar 

  • Berle, A. A., & Means, G. C. (1932). The modern corporation and private property. New York: McMillan. 1934 (republished).

    Google Scholar 

  • Blair, M. (1995). Ownership and control: rethinking corporate governance for the 21st century. Washington, DC: Brookings Institution.

    Google Scholar 

  • Blair, D. H., & Crawford, D. L. (1984). Labor union objectives and collective bargaining. The Quarterly Journal of Economics, 99(3), 547–566.

    Article  Google Scholar 

  • Blau, P. M. (1955). The dynamics of bureaucracy: A study of interpersonal relations in two government agencies. Chicago: Chicago University Press.

    Google Scholar 

  • Blyton, P., & Turnbull, P. (1992). Debates, dilemmas and contradictions. In P. Blyton & P. Turnbull (Eds.), Reassessing human resource management (pp. 2–15). London: Sage Publications.

    Google Scholar 

  • Bontis, N., & Serenko, A. (2007). The moderating role of human capital management practices on employee capabilities. Journal of Knowledge Management, 11(3), 37–51.

    Article  Google Scholar 

  • Calton, J. M., & Lad, L. J. (1995). Social contracting as a trust-building process of network governance. Business Ethics Quarterly, 5(2), 271–295.

    Article  Google Scholar 

  • Calton, J. M., & Payne, S. L. (2003). Coping with paradox. Business and Society, 42(1), 7–42.

    Article  Google Scholar 

  • CFA Institute. 2007. China Corporate Governance Survey. Retrieved from http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2007.n3.4563.

  • Chan, A., & Siu, K. (2010). Analyzing exploitation: The mechanisms underpinning low wages and excessive overtime in Chinese export factories. Critical Asian Studies, 42(2), 167–190.

    Article  Google Scholar 

  • Chan, A. (2009). Challenges and possibilities for democratic grassroots union elections in China. Labor Studies Journal, 34(3), 293–317.

  • Chilosi, A., & Damiani, M. (2007). Stakeholders vs. shareholders in corporate governance. Icfai Journal of Corporate Governance, 6, 7–45.

    Google Scholar 

  • Clarkson, M. B. E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. The Academy of Management Review, 20(January), 92–117.

    Google Scholar 

  • Cooke, F. (2011). Labour market regulations and informal employment in China: To what extent are workers protected? Journal of Chinese Human Resource Management, 2(2), 100–116.

    Article  Google Scholar 

  • Deakin, S., Richard, H., Suzanne, K., & Frank, W. (2002). Partnership, ownership and control: The impact of corporate governance on employment relations. Employee Relations, 24(3), 335–352.

    Article  Google Scholar 

  • Dodd, M. (1932). For whom are corporate managers trustees? Harvard Law Review, 45(7), 1145–1163.

    Article  Google Scholar 

  • Freeman, E., & Evan, W. (1990). Corporate governance: A stakeholder interpretation. Journal of Behavioral Economics, 19(4), 337–359.

    Article  Google Scholar 

  • Freeman, R. B. & Lazear, E. P. (1994). An economic analysis of work councils. National Bureau of Economic Research Working Paper no. 4918, Cambridge, MA.

  • Friedman, E., & Lee, C. K. (2010). Remaking the world of Chinese labour: A 30-year retrospective. British Journal of Industrial Relations, 48(3), 507–533.

    Article  Google Scholar 

  • Ge, Y. (2014). Do Chinese unions have ‘real’ effects on employee compensation? Contemporary Economic Policy, 32(1), 187–202.

    Article  Google Scholar 

  • Goodpaster, K. (1991). Business ethics and stakeholder analysis. Business Ethics Quarterly, 1, 53–73.

    Article  Google Scholar 

  • Gray, B., & Wood, D. (1991). Collaborative alliances: moving from practice to theory. Journal of Applied Behavioral Science, 27(1), 3–21.

  • Hill, C., & Jones, T. (1992). Stakeholder-agency theory. Journal of Management Studies, 29(2), 131–154.

    Article  Google Scholar 

  • IFC (International Finance Corporation). (2005). Step by step corporate governance models in China. Retrieved from http://documents.worldbank.org/curated/en/2005/04/6479832/step-step-corporate-governance-models-china-experience-international-finance-corporation.

  • Jackson, G., Höpner, M., & Kurdelbusch, A. (2004). Corporate governance and employees in Germany: Changing linkages, complementarities and tensions. RIETI Discussion Paper Series 04-E-008, http://www.rieti.go.jp/jp/publications/dp/04e008.pdf.

  • Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

    Article  Google Scholar 

  • Kelly, M. (2002). The next step for CSR: Economic democracy. Business Ethics, 3, 305–360.

    Google Scholar 

  • Konzelmann, S., Conway, N., Trenberth, L., & Wilkinson, F. (2006). Corporate governance and human resource management. British Journal of Industrial Relations, 44(3), 541–567.

    Article  Google Scholar 

  • Lee, C. H. (2009). Industrial relations and collective bargaining in China. DIALOGUE Working Paper No. 7. Geneva: International Labour Organization.

  • Liu, Q. (2006). Corporate governance in China: Current practices, economic effects and institutional determinants. CESifo Economic Studies, 52(2), 425–453.

    Article  Google Scholar 

  • Lu, Y., Tao, Z., & Wang, Y. (2010). Union effects on performance and employment relations: Evidence from China. China Economic Review, 21(1), 202–210.

    Article  Google Scholar 

  • Marens, R., & Wicks, A. (1999). Getting real: Stakeholder theory, managerial practice and the general irrelevance of fiduciary duties owed to shareholders. Business Ethics Quarterly, 9(2), 273–293.

    Article  Google Scholar 

  • McCahery, Joseph A., & Vermeulen, Erik P. M. (2008). Corporate governance of non-listed companies. Oxford: Oxford University Press.

    Book  Google Scholar 

  • MLSS (Ministry of Labor and Social Security). (2009). Almanac of labor and social security (Zhongguo laodong he shehui baozhang tongji nianjian). Beijing: China Statistical Press.

    Google Scholar 

  • NBS (National Bureau of Statistics). (2010). China Statistical Yearbook. Beijing: China Statistical Press.

    Google Scholar 

  • OECD (Organization for Economic Cooperation and Development). (2006). Corporate governance of non-listed companies in emerging markets. Retrieved from http://www.oecd.org/corporate/ca/corporategovernanceprinciples/37190767.pdf.

  • Rosen, S. (1986). The theory of equalizing differences. In Handbook of labor economics (Vol. 1, pp. 641–92). Distributed in North America, New York: Elsevier.

  • SETC. (2003). Tentative standards for small and medium enterprises. SETC document no. 143, SME Department.

  • Shen, Y., & Yao, Y. (2009). CSR and competitiveness in China. Beijing: Foreign Languages Press.

    Google Scholar 

  • Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–783.

    Article  Google Scholar 

  • Shrivastava, P. (1986). Is strategic management ideological? Journal of Management, 12, 363–377.

    Article  Google Scholar 

  • Tirole, J. (2001). Corporate governance. Econometrica, 69(1), 1–35.

    Article  Google Scholar 

  • Van Buren, H. J. (2001). If fairness is the problem, is consent the solution? Integrating ISCT and stakeholder theory. Business Ethics Quarterly, 11(3), 481–500.

    Article  Google Scholar 

  • Xu, S., & Yang, R. (2010). Indigenous characteristics of Chinese corporate social responsibility conceptual paradigm. Journal of Business Ethics, 93, 321–333.

    Article  Google Scholar 

  • Yang, X., & Yao, Y. (2012). Environmental compliance and firm performance: Evidence from China. Oxford Bulletin of Economics and Statistics, 74(3), 397–424.

    Article  Google Scholar 

  • Yao, Y., & Zhong, N. (2013). Unions and workers’ welfare in Chinese firms. Journal of Labor Economics, 31(3), 633–667.

    Article  Google Scholar 

  • Zhang, X. (2009). Trade unions under the modernization of paternalist rule in China. WorkingUSA: The Journal of Labor and Society, 12(2), 193–218.

    Article  Google Scholar 

  • Zhong, N. (2015). Corporate governance of Chinese privatized firms: Evidence from a survey of non-listed enterprises. Journal of Comparative Economics. doi:10.1016/j.jce.2015.05.003.

  • Zingales, L. (1998). Corporate Governance. In Peter Newman (Ed.), The new palgrave dictionary of economics and the law. London: Stockton Press.

    Google Scholar 

  • Zingales, L. (2000). In search of new foundations. Journal of Finance, 55(4), 1623–1653.

    Article  Google Scholar 

Download references

Acknowledgments

We thank the Section Editor Thomas Clarke, two anonymous referees, Sudipto Dasgupta, Vidhan Goyal, Mark Seasholes, and seminar participants at Hong Kong University of Science and Technology for helpful comments. We are also grateful to the research fund provided by Natural Science Foundation of China (with Grant number 71402123), the National Social Science Foundation of China (with grant number 13&ZD015), Shanghai Pujiang Program (with Grant number 14PJC104), the Fundamental Research Funds for the Central Universities (with Grant number 1200219243), and Shanghai Institute for National Economy at Shanghai Jiaotong University.

Author information

Authors and Affiliations

  1. School of Economics and Management, Tongji University, 1239 Siping Road, Shanghai, 200092, People’s Republic of China

    Ninghua Zhong

  2. School of International Finance, Shanghai Finance University, Shanghai, 200092, People’s Republic of China

    Shujing Wang

  3. School of Economics, Peking University, Beijing, People’s Republic of China

    Rudai Yang

Authors
  1. Ninghua Zhong
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Shujing Wang
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Rudai Yang
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Shujing Wang.

Additional information

An erratum to this article is available at http://dx.doi.org/10.1007/s10551-016-3347-8.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Zhong, N., Wang, S. & Yang, R. Does Corporate Governance Enhance Common Interests of Shareholders and Primary Stakeholders?. J Bus Ethics 141, 411–431 (2017). https://doi.org/10.1007/s10551-015-2702-5

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-015-2702-5

Keywords

Search

Navigation