Corporate governance and initial public offerings in China

Corporate governance mechanisms: Governed by a powerful Communist government, the People's Republic of China (PRC) is a country with strong state central control and whose most distinctive cultural feature is its highly homogeneous social culture. Hence, it is very socially cohesive. After the establishment of the PRC in 1949, a civil law system has been built up gradually and improved considerably during the 1990s in the sense of supporting the market-oriented economic reforms which encourage the market to play a fundamental role in allocating economic resources. Meanwhile, maintaining the control of critical and strategic resources throughout the country, including large state-owned enterprises (SOEs), has been emphasized. During that period, a number of those large SOEs were restructured into joint stock companies and then floated on the two domestic stock markets in Shanghai and Shenzhen, forming the majority of China's listed companies. However, the market for corporate control is inactive for firms that underperform in their industries since many of those activities still need to be approved by the government. Information disclosure is opaque in the sense that information is manipulated, delayed, and even falsified in some cases. Nevertheless, things improved a lot after the thirty-nine new accounting principles released in 2006, which indicates the moving towards convergence with International Financial Reporting Standards (IFRS). Corporate governance codes are mandatory, which means that the regulatory authority may instruct companies to correct their inappropriate governance practices to comply with the codes. The business group is the common form of corporate governance which is dominated by the state.