It is undoubted that Enron and WorldCom scandals have global repercussions. The most significant one must be the collapse of Arthur Anderson, which has made auditors the scapegoat for US corporate downfalls. The major...
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It is undoubted that Enron and WorldCom scandals have global repercussions. The most significant one must be the collapse of Arthur Anderson, which has made auditors the scapegoat for US corporate downfalls. The major repercussion to China was that Chinese Institute of Public Accountants (CICPA) had to make a 'U' turn on its original decision, i.e. the former 'Big 5' accounting firms should counter-sign off A-share reports audited by Chinese local accounting firms. This original decision was an effort to combat the corporate scandals in China by entrusting higher standards and quality services offered by the international accountancy firms. It was also a step to harmonise Chinese accounting standards with International Accounting Standards (IASs). Now these US corporate scandals may make some Chinese accountants wonder: what is the fuss about? Big names are not better than others after all. Rather than trying to find who to blame, it is worth while to have a rethinking about what the lessons can be learnt. The purpose of this paper is to explore reasons behind corporate scandals and collapse of accounting firms by using two big corporate scandals, namely WorldCom in the US and GuangXia (Yinchuan) Industry Co. Ltd in China (Yin Guang Xia). As a result, some light may be shed on China's entire process of harmonisation with IASs. Some possible policy options are then proposed.
The controlling shareholders of Chinese listed firms generally hold state or institutional shares that have the same rights as those held by individual shareholders, but have a significant price discount below the ind...
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The controlling shareholders of Chinese listed firms generally hold state or institutional shares that have the same rights as those held by individual shareholders, but have a significant price discount below the individual shares because they are not tradable in the stock exchanges. This price difference gives rise to a disproportionate return from cash dividends that favors the controlling shareholders over the individual shareholders. This paper documents that there is quite a wide spectrum of dividend payout ratios among Chinese listed firms, with dividend / earnings ratio as high as 200%. Our results indicate that government-controlled firms, corporate-controlled firms with high concentration of state and institutional shares, and firms with low leverage tend to have higher dividend payout ratios. We find evidence that dividends issued by government-controlled firms are not associated with contemporaneous stock returns. For corporate controlled firms, dividends issued by firms with low concentration of state and institutional shares are positively associated with contemporaneous stock returns while those with high concentration are not. These findings support the hypothesis that in China, dividends are not purely used for signaling purposes, but can be used by controlling owners as a means to divert resources from their listed companies to benefit themselves.
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