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24 May 2021 
Claude 
Introduction
In recent decades, the global political and economic order has been in a state of perpetual change in its organization. For a long time, the United States and Europe dominated the rest of the world. However, recently there has been a shift in the balance of power, essentially characterized by the slowdown in the so-called “developed” economies and the emergence, more pronounced year after year, of new economies, formerly known as the “Third World”. At the forefront of these emerging economies are the “BRICs” (Brazil, Russia, India and China). At the head of these countries, China.
China alone occupies a special position in view of its weight on the economic stage, but not only that. Economically, China has been ranked 2nd in world power and 1st exporter. Spectacular growth for a country in which the current government advocates communism and imposes restrictions in terms of openness to the international. From a demographic and social point of view, China is the world’s largest population with 20% of the total population in the world! A population rich in history and past.
But it seems important to note that the change in the world order is not only linked to the emergence of the BRICS but also and especially due to the different crises that have hit the economic and financial system set up by the “developed” countries. “. These various crises have highlighted the flaws of this system. Companies in order to cope with and overcome these crises have conditioned their ways of organizing themselves and this has impacted the organization and theinternalrunning of the companies as well as in the norms of regulation but also the vision of the investors, and especially the reports that govern the relations of the management bodies and shareholders, and also the different stakeholders (employees, creditors …).
Thus, with the growing growth of emerging countries and in an increasingly competitive environment. Every country tries to deal with it. It is in this context that the notion of corporate governance resurfaces, which finds its full meaning.In the recent decades, corporate governance has been the subject of increasing attention by researchers from different disciplinary fields. The emergence of this theme is generally attributed to the debate opened by Berle and Means in 1932 and later resumed by Jensen and Meckling in 1976.
However, corporate governance is still a subject that overhangs different gray areas. But the fact remains clear, the corporate governance is
Corporate governance is a very broad topic and there are many elements that impact it. In this literature review we will focus primarily on the ownership structure as one of the factors influencing corporate governance.In fact, the separation of ownership and decision functions within a company gives rise to an agency relationship between the principals, the shareholders and the agents, the managers. This relationship raises risks of abuse due to the divergence of interests between shareholders and executives. The executives are in a privileged position conferring control over the company du to the fact that they can have access to the information and can adopt opportunistic strategies to maximize their wealth at the expense of others due to the asymmetric information. To mitigate these conflicts of interest, shareholders put in place various mechanisms internal and external to reduce managerial latitude and to diminish the possibilities of deviant behavior.
However, the question of how ownership structures affect the governance of emerging market firms such as China, a country with a single institutional framework, remains a challenge that draws attention. The need to investigate the impact of the ownership structure on the corporate governance is imperative, given the significant influence of the Chinese economy on the global economy. This literature review aims to present the 2 key concepts: Ownership structure and Corporate governance but specially to emphasize their correlation. In other words, how does the ownership structure impact the corporate governance?
In a first part we will generalize our approach and in a second part we will be interested in the case of China. Through this paper we will try to focus on the particularities of China compared to other countries and discuss the possible effect of China’s adoption of common governance mechanisms and it impact on its growth. In order to carry out our analysis, we will adopt a bottom-up approach that consists of the generalized approach of the impact of the ownership structure on corporate governance and present the theoretical findings and the rules governing this relationship in the rest of the world. To then understand the framework and the general situation of China that will allow finally to understand the specificities of China and to draw up the final balance sheet.
Corporate governance: General approach
Companies took a big and predominant place in the world, they become institution in full, with power and a huge impact even on the political decisions. Their governance has impacted the economy and different aspects of the social area. Shareholders are becoming more and more suspicious. Globalization, with all its aspects and, in particular, delocalization, has contributed to the loss of control of the hands of governments, which implies the question of who has the responsibility and the governance of the companies?
Corporate governance has therefore become a key element in managing institutions as the companies in this current framework and complex environment. To learn more about corporate governance, it’s necessary to start by its definition, even if there is no official one but the most common one is that corporate governance it can be defined as a multitude of “processes and structures for controlling and directing an organization. It constitutes a set of rules, which governs the relationships between management, shareholders and stakeholders” (Ching et al, 2006).
According to different sources, the term of “corporate governance” finds its origin from a Greek word, “kyberman” which means to guide or govern, it also means the process of making decisions. The term has evolved to include all the economic and non-economic activities.Although today’s concept of corporate governance is widely used, it is not well understood, because of the different approaches and definitions given. it depends strongly on the specific point of view from which each person undertakes his analysis.Corporate governance has been approached from a multidisciplinary perspective.
Legal point of view: According to a number of researchers such as: Coase (1937), Jensen and Meckling (1976), the analyze of corporate governance have to be in a legal context. The corporate governance is defined as all the aspects of the obligations of the company envisaged as a legal person and taken up by a series of authors, for example: publication and disclosure to the shareholders of the important decisions taken by the management within the company or the rights of representation of shares exercised through their right to vote. From an economic point of view: Corporate governance is about considering a set of factors when formulating a strategy, such as: the resources available, the competitors present in the marketplace; the structures, systems, and processes used for the smooth running of the activity, but also the firm’s goals, and objectives. (Coheis and Montgomery, 1997).
Traditional vision: Corporate governance is defined as “the set of organizational and institutional mechanisms that delimit the discretionary space of the leader and influence their decision-making”.This traditional vision is the most common and widespread, it identifies the main key players in the governance process. Shareholders Owner of the company The Board of Directors Ensure that the company’s activities comply with its corporate (internal and external) policies. The Management teamin charge of the smooth running of the operations. Those 3 actors are differently motivated, tensions and conflicts often generated especially since information isn’t equitably shared.
The separation of ownership and decision functions within a company gives rise to an agency relationship between the principals and the agents. This relationship raises risks of abuse due to the divergence of interests between shareholders and executives. The executives are in fact in a privileged position conferring control over the company and can adopt opportunistic strategies to maximize their wealth at the expense of others.
Fundamental Corporate Governance Theories
Many theories have been raised about corporate governance, we will present the major theories.
Agency theory: (Jensen and Meckling (1976): Amihud and Lew (1981),Eisenhardt (1989), Charredx…). According to this theory ,the administrators play the role of intermediary and control over the operationalmanagers (agents) who are governed mainly by their own interests, which obliges the shareholders to control the mangers through the board of directors in order to reduce the cost of agency that represent the difference between the creation of maximum value from the shareholders point of view and the real value taking into account the selfish behavior of the agents.
Resource dependence theory: This theory, defended mainly by Pfeffer et Salancik (1978) and Boeker and Goodstein (1993) rely on the ideathat the independence of a corporation depends on its ability to control the resources of its environment and therefore to have access to the vital resourcessuch as financial , human and technical resources.
Stewardship theory: ( Davis, Schoorman, and Donaldson (1997) Roberts and Stiles (1999)). This theory starts from the principle that the management and decision-makers have a limited number of common interests. The steward is fully involved and committed to the performance of the organization, which has the same objectives as him. It is, therefore, not necessary to control it thus reducing his initiative and motivation.
The theory of the transaction costs: Williamson (1975) formulates this theory, which details the distinction between doing and buying according to three criteria: the specificity of the factors, the uncertainty of the environment, and the frequency of transmission. Williamson’s theory begins with the analysis of the components of the transactions called attributes and the structures that realize them, the firms, From there, agents become aware that saving on transaction costs is better than the waste resulting from choices guided by chance or managerial intuition. This desire to reduce costs determines the choice of appropriate modes of governance.
Moral hazard theory: Williamson (1999) refers this time to the case where the agent undertakes to perform an action on behalf of a principal while the final result of the action depends on a known meter of the agent but not the principal. Asymmetric information gives the agent the possibility of using his advantage without this abuse being questionable by the principal or a third party.
Upper echelons theory: This theory gives a weight to the demographic data as : the age, the education and the professional experience to characterize the influence exerted on their strategic choices. The heterogeneity of the management systems is favorable in the decision-making process, although it is less favorable for the flexibility and reactivity.
Corporate Governance Control Mechanisms
After having first described and presented the definition and theories of corporate governance, we are now interested in its control mechanisms. Two large distinct families arise:
• Exogenous control instruments, in which the capital market and the legal system are important
• Endogenous control instruments based on the General Assembly and the Board of Directors.
We should notice that the choice of the mechanisms to be applied depends on the institutional context and the undertaking of the company. The external control instruments:
1. The capital market, which fixes the price of the shares of the companies.
2. The legal regulatory framework, which fixes the rights and duties of management
3. Independent accounting audits, allowing all stakeholders to have an external view of the company’s management and on its current performance.
4. The goods and services market, which exert a selective pressure on firms that do not offer to their clients the adequate product
5. The human capital market, which includes all the relationships between managers and shareholders, and in which management is mandated by the shareholders.
The internal control instruments
The objective of this research is to highlight the interaction of the ownership structure with the governance within the company. Most of the research carried out in this direction proved the existence of a correlation. According to them, the structure of ownership within an enterprise impacts governance, although it is not the only element influencing the governance of enterprise, it remains one of the components. In our research we will present the different theories on the subject and we will focus on the case of China to present its characteristics related to its history and its Communist culture.
In recent decades, corporate governance has been the subject of increasing attention by regulators and researchers from different disciplinary fields. The emergence of this theme is generally attributed to the debate opened by Berle and Means in 1932 and later resumed by Jensen and Meckling in 1976. For these authors, the separation of ownership and decision functions within a company gives rise to an agency relationship between the principals, the shareholders and the agents, the managers. This relationship raises risks of abuse due to the divergence of interests between shareholders and executives. The executives are in fact in a privileged position conferring control over the company and can adopt opportunistic strategies to maximize their wealth at the expense of others due to the asymmetric information.
To mitigate these conflicts of interest, shareholders put in place various corporate governance mechanisms internal and external to reduce managerial latitude and to diminish the possibilities of deviant behavior. Ownershipstructures are also of major importance in corporate governance because they affect theincentives of managers, and thereby the efficiency of firms.Emerging markets are also subject of those agency problems, because of poor governance stemming from weak legal and institutional systems. The ownership structure has been identified as a mechanism of control in the monitoring of the firm’s activities.
Several researchers have demonstrated, although to a large extent, the matured economies, the importance of the ownership structure to the value of the enterprise. However, the question of how ownership structures affect the governance of emerging market firms such as China, a country with a single institutional framework, remains a challenge that draws attention. The need to investigate the impact of the ownership structure of Chinese listed companies is imperative, given the significant influence of the Chinese economy on the global economy.
This literature review aims to present the 2 key concepts: Ownership structure and Corporate governance but specially to emphasize their correlation.In other words, how does the ownership structure impact the corporate governance. In a first part we will generalize our approach and in a second part we will be interested in the case of China. Before any deepening in the subject, it seems to me essential and primordial to be interested in the key concepts of the very subject which are the ownership structure and the governance. In the first two parts we will be interested in explaining more and presenting the theories on the subject.
Ownership structure: Types of ownership structures
7 common structures to organize the company: Sole Proprietorship; Partnership; Limited Partnership; Limited Liability; Company; Joint Stock Company (for-profit); Non-profit Corporation (non-profit); Cooperative. Individual businesses and partnerships For many new businesses, the best initial ownership structure is either a sole proprietorship or a partnership. Since the official opening of China to the outside world in the late 1970 years, the country has undergonemassive economic reform, leading to a steady double-digit GDP growth in recent years. Prior to the restructuring of State-owned enterprises, virtually all Chinese companies were hampered by gross inefficiencies, perhaps stemming from the excessive influence of the Government on the activities of these enterprises.
Shortly thereafter, and without radical changes in the ownership structure, China began the process of reforming public enterprises towards a market-oriented system.Under this philosophy, the State has begun to transform public enterprises from loss-making centres into profitable and return-oriented investment centres, organized on competitive market principles encompassing both manufacture of products and the acquisition of the required production factors (Rawski, 1994). The approach taken by China in the reform of public enterprises is a derogation from the approach to privatization of owners widely adopted in Russia and other parts of Eastern Europe (Rawski, 1994 and Boycko et al., 1996).
Although the market-oriented approach, as adopted by the Chinese Government, has helped to promote economic growth, the system has not shown signs of increased efficiency, and thus an improvement in the overall performance of companies Public. Their poor performance was conceivable because of their previous ownership structure, which could have resulted in managers lacking authority to properly govern their business described as the Agency’s problem.