The Impact of Corporate Governance mechanism on firms’ Financial Performance and Corporate Social Responsibility Conduct in China

Abstract

The dissertation summarizes the theoretical-methodological and scientific-practical aspects of the impact of corporate governance (CG) on the financial performance (FP) and corporate social responsibility (CSR) of companies in the People's Republic of China and defines the mechanism of their interaction on the development of Chinese listed companies. The beginning of the new millennium was the moment of a surge of scandals in which social, environmental and management aspects were intertwined, and the common thread in these incidents is the interaction between corporate governance and CSR. Such scandalous incidents have pushed scientists, practitioners and legislators to try to understand how the concepts of CG and CSR are interconnected and overlap each other. Despite numerous studies on CG and CSR, there is no consensus on the nature of the relationship between these two concepts and how this relationship manifests itself in the institutional context, as well as how it affects FP of companies. At the same time, it is known that a balanced structure of the CG not only contributes to the growth of the company's financial indicators, but also allows the company to better fulfill its social obligations, at the same time, appropriate financial performance and fulfilling social obligations are necessary conditions for the sustainable development of listed companies. The author has developed a methodical approach and framework of the relationship among corporate governance, financial performance, and CSR conduct in companies, which unlike existing research analyzing the relationship between the two, studies the links between the three phenomenon and allows for a broader consideration of the mission and environment of companies in the conditions of the stakeholder economy. The conceptual and categorical apparatus was improved by clarifying the definition of corporate governance that includes consequences of corporate decision making on non-financial stakeholders and defines it as related to all processes that affect both financial and non-financial firm level outcomes. In order to improve the understanding of how research on the interrelationship in the triangle of CG-CSR-FP of companies manifests itself in various institutional aspects, the work synthesizes existing research according to various institutional approaches. The research improves algorithm and methodical approaches to the interaction between CG and CSR, and the trend of the two approaching each other, in which CSR conduct divided into two levels, namely CSR behavior and CSR disclosure, which are used to measure the extent to which enterprises protect the rights and interests of stakeholders and the intensity of CSR information disclosure respectively and that interaction could lead to either internal orientation or external orientation, two types of CSR behaviors elucidated. Dissertation work have also been improved theoretical and methodological approaches to the comprehension of the influencing factors of CSR disclosure of Chinese listed companies, which identifies financial conditions, CSR behaviors, and market participants' behaviors as a forces jointly affecting CSR disclosure, while acknowledging that companies with high levels of FP and CSR behavior are willing to increase the intensity of CSR disclosure and vice versa, listed companies with lower FP or less CSR behavior will reduce CSR disclosure. In the work, the model of division at the stage of development of corporate governance in China was further developed and specified based on the development of the securities market and corporate governance norms; methodical approach to the grouping criteria of this type of research, which unlike previous studies conducting group analysis based on conditions such as the proportion of state-owned shares and the nature of controlling shareholders, uses "whether the state holds shares" as the classification standard, explores the differences between the two types of enterprises in empirical research, and allows to draw new research conclusions; mechanism by which institutional investors improve FP and improve CSR behavior demonstrating that only listed companies with great growth potential can attract investment from institutional investors, and institutional investors will in turn promote the sustainable development of listed companies through long-term holding and participation in decision-making; determination of features of the distribution of agency problems in Chinese listed companies by demonstrating the prevalence of type I agency problems in State Investment Enterprise (SIE), while evincing that type II agency problems prevails in Non-SIE companies. The practical significance of the obtained results is that the theoretical provisions and practical recommendations, conclusions and proposals of the dissertation work are aimed at solving the problems of the functioning of companies in the conditions of the stakeholder economy with a strong orientation towards meeting the needs of all stakeholders, not only shareholders, and the corresponding reorientation to this and expansion functions of CG, improving its interaction with the corporate function of CSR and in relation to the impact on the FP of listed companies in the People's Republic of China.