英语论文网

lowed—for
the first time since China started permitting foreigndirect investment (FDI) in the late 1970s—to acquirea significant shareholding in state-owned enterpriseson China's renminbi-dominated, A-shareexchanges in Shanghai and Shenzhen. The changingof rules for the types and extent of direct investmentin both China and India increases opportunity foreconomic gains, but it also increases exposure to
risks and problems posed by under-developed andlax governance. The governance rules in these
countries are both opaque and evolving, and foreigninvestors need to appreciate the domestic sensitivities
and complexities stemming from countryspecificpolitical and institutional landscapes sothat appropriate types and levels of involvementcan be designed to protect their short-term andlong-term interests.
Emerging economies also represent unique challengesfor corporate governance practices. First,many emerging economy firms are noted for theirlack of transparency and are unwilling to acceptglobal best governance practices. Second, due to
the institutional differences between developed and
emerging economies, governance practices employed
in Western developed economies may notbe applicable in the emerging economy context.Significant differences in the legal and institutional
environments exist between China and India, andbetween either one and the US or other Westerncountries. Fundamental differences in ownership
structures, business practices, and enforcementstandards imply major gaps between formal adoption
of progressive and sophisticated governancecodes and the actual implementation of these
codes. While regulators in emerging economiesmay be quick to adopt best corporate governancepractices from the West, the presence of these
practices is no guarantee that they will be strictlyimplemented to uphold investors' interests. In the
following sections of this article, we will highlightfurther implications for firms seeking to invest inthese emerging markets.
2. Driving forces behind corporategovernance reforms in China and India
While many factors have contributed to governancereforms in China and India, the most important arearguably privatization and globalization. In thissection, we will discuss how these two forces haveshaped corporate governance reforms in China and
India, while also identifying differences in theireffects between the two emerging economies.
2.1. The effect of privatization on corporate
governance reforms
In the past few decades, emerging economies havelaunched ambitious plans to privatize their stateownedenterprises (SOEs). The volume of privatizationn emerging economies has increased from$8 billion in 1990 to about $65 billion in 1997
(Dharwadkar, George, & Brandes, 2000). In privatization,ownership is transferred from the state to
new private and public owners, which may include
management, employees, local individuals, institutions,
and foreign investors, with the state also retaininga certain percentage of ownership after
privatization. The new diversified ownership structureafter privatization makes corporate governance
an important issue in emerging economies.1 On theone hand, the new ownership structure creates the
traditional principal agency problem whereby selfinterestedexecutives aim to maximize their private
interests rather than the owners' interests. To addressthis problem, it is necessary to design effective incentivemec