successful
companies drained of their capital by the collusion of insiders and the firms’ largest shareholders. Nonetheless, the problem
looks mild in comparison with Russia’s privatization experience. In any case, defrauded amounts are measured in millions
of U.S. dollars, not in billions.
19 Xia (2001) documents the case of Baosteel.48 D. Li et al. / Research in International Business and Finance 21 (2007) 32–49
Overall, our results suggest that CEOs have benefited from the overwhelming effects of globalization
rather taken advantage of corporate governance flaws to boost their compensation. This, of
course, does not mean that corporate governance mechanisms must not be improved. In fact, the
Chinese authorities have clearly recognized the importance of addressing the problem. Effective
internal controls appear particularly needed given the inadequacy of external control mechanisms.
Most notably, shareholders are relatively unsophisticated. In addition, the legal system
offers little recourse against corporate abuses. However, as corporate governance standards gradually
improve, one may expect CEO compensation to be less determined by board duplicity or
shareholder passivity. Quite the opposite, as China becomes ever more integrated in the world
economy, as emphasized by its recent accession to theWTO, CEO compensation will increasingly
be determined by market forces. Our results already reflect this reality and are likely to receive
further support as time passes by.
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Cryst
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