Are OECD-Prescribed 'Good Corporate Governance Practices' Really Good in an Emerging Economy?

The purpose of this paper is to examine whether adopting OECD-prescribed corporate governance principles can solve the major corporate governance problem in an emerging economy - controlling-shareholder expropriation. We argue that none of any "good corporate governance practices" in OECD countries (e.g., an active board of directors, separation of chairperson and CEO, significant presence of outside directors, and a two-tier board) can attenuate the negative effect of controlling-shareholder expropriation on corporate performance for two main reasons. First, "good" practices are mainly designed to resolve conflicts between shareholders and the management but not conflicts between controlling and minority shareholders. Second, board directors are typically not independent of controlling shareholders, and supervisory directors often have low status and weak power in a firm. Using a panel of over 1,100 Chinese listed firms between 2001 and 2003, we find supportive evidence for our arguments. We discuss the implications of our study for public policy and strategies of investors