Corporate Governance in Hong Kong

1. Corporate Governance in Hong Kong Stephen Y. L. Cheung Professor (Chair) of Finance Department of Economics and Finance City University of Hong Kong January 2003

2. Characteristics of Asian Equity Markets • Single majority shareholder • Family control • Lack of institutional investors • CEO and chairman are not separated • Underdeveloped corporate control market Corporate Governance in Hong Kong

3. A Successful Market Depends On: • ‘Good’ Regulatory Framework • Quality Listed Companies • Quality Intermediaries Corporate Governance in Hong Kong

4. ‘Good’ Regulatory Framework • Small Shareholders • Look for short-term capital gain • Ignore issues of corporate governance • Do not pay attention to shareholder’s right • Inadequate shareholder protection Corporate Governance in Hong Kong

5. ‘Good’ Regulatory Framework • Suggestions • Derivative action • Fund for legal action Corporate Governance in Hong Kong

6. ‘Good’ Regulatory Framework • Example • Hong Kong listed companies • 75% registered overseas • Different requirements • Class Action • Contingency Fee Corporate Governance in Hong Kong

7. Quality Listed Companies • A successful market does not depend on: • Number of listed companies • Market capitalization • Depends on: • Number of good listed companies • Liquidity • Ability to attract funds Corporate Governance in Hong Kong

8. Quality Listed Companies • Relation between director’s pay and company’s performance • Sample period: 1991-1995 • 10% director’s pay > company’s earnings • No relation Corporate Governance in Hong Kong

9. Quality Listed Companies • Corporate governance • Independence of the Board • Problem • Connected parties transactions • Information disclosure Corporate Governance in Hong Kong

10. Quality Listed Companies • Enhance independence of the Board • Recruitment details of independent non-executive directors • Greater transparency • Financial • Non-Financial • Performance evaluation Corporate Governance in Hong Kong

11. Quality Listed Companies • Suggestions • Licensing for directors • Director’s education • Scorecard for corporate governance • Investors • Pressure Corporate Governance in Hong Kong

12. Quality Intermediaries • Intermediaries • Accountants • Auditors • Lawyers • Financial Analysts Corporate Governance in Hong Kong

13. Quality Intermediaries • Example • A News on 23 December 2002 • 3 listed companies were involved over a suspected scam of making bogus business transactions and inflated revenue • Arrested by the ICAC • Including accountants and financial consultants • Inflated turnover Corporate Governance in Hong Kong

14. Quality Intermediaries Corporate Governance in Hong Kong

15. Quality Intermediaries Corporate Governance in Hong Kong

16. Quality Intermediaries Corporate Governance in Hong Kong

17. Quality Intermediaries • Self-Regulation • Effectiveness? • Independent Investigation Committee Corporate Governance in Hong Kong

18. Conclusion • Market creditability • Investor confidence • Ability for further funding • Ability to attract quality companies Corporate Governance in Hong Kong

19. ~ The End ~ Thank you