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Turnning UK 原创报告:一个在英国与中国的银行业的

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A Comparison Study of Corporate Governance Issues in Banking: UK vs China by 
Submitted to University of Edinburgh on 2010-08-30
paper text:
1.0 Abstract The article serves as a comparison study on the common corporate governance practise and recent developments in UK and China's banking sector. 留学生论文润色Through the agent problem and insider issue of corporate governance, UK and China displays quite different stages of tackling these issues while there seem different institutional settings that prevents the later to simply copy the former's experiences, under the context of growing concern of fatigue in proper corporate governance a major force driving the global financial crisis. 2.0 Introduction 2.1 Why compare UK and China? Why Banking Industry? The comparison between UK and China is mainly due to the representativeness behind the two economies' banking sector as one stands for a dominant developed market financial system and the other emerges to become an increasingly significant player in the market. China's financial market practise and corporate governance issues, generally speaking, has not been an focus area post the financial crisis as it did not get involved as many issues as its developed market counterparts did.27However, the corporate governance issues of banks, especially in developingmarkets in China, are very important because firstly, banks are usually preeminent in the developing countries' financial system and a key pillar industry to boost the domestic10economic growth (King and Levine 1993; Levine 1997). Secondly, unlike developed marketswhere fund raising activities can take place in a number of platforms, banks remain the major source of fund & places for depository for developing markets. Thirdly, privatisation and declining power of state control have taken place in developing countries' banking sector which resulted in banking executives' increasing control over the operation of their own banks. 3.0 Theoretical framework22of corporate governance issues 3. 1 Definition of corporate governanceBroadly speaking, there exist two different approaches of defining corporate governance in the academics. The first being the narrow definition, i.e. corporate governance serves as the way that the shareholders are guaranteed so that management could act to secure maximum interests. (Levine, 2003; Arun & Turner 2004). The second being the broader definition, i.e.1corporate governance is seen as the way through which financial suppliers control managers in order to be assured that their capital cannot be expropriated and that they maximize investment return (e.g.Orman 2001) There are two types of issues universally existent in corporate governance i.e. the agency issue and the insider control issue. The agency issue has been recognized for a long while between owners and managers in public companies. (Berle & Means 1932; Jensen & Meckling 1976). The agency issue would contribute to abusive use of management power to produce an organisation that finally ruled out the interests from the shareholders (Levine 2003). A market competition for products solution has been raised by various authors in order to curb the loss of discipline in managers when balancing the interests between their own and that of the shareholders. However, Shleifer & Vishny (1997) contends that perfect competition would not solve the issue of agency problem alone and suggests that it would be best to consolidate internal corporate governance, and particular17attention should be paid to the board of directors and big shareholders in thecorporation. The insider control29issue stems from the unfair distribution of power between the majority shareholder andthe minority shareholder, while the former may eat into the latter's interests. If the minority shareholder's interest could not be maintained property, less participation or conflicts would arise in the organisation thus effectively negatively impact the efficiency of the capital market. A fair solution to insider control problem comes from fierce market competition and the maturity of laws and regulations. 321.2 Corporate Governance' s special nature of banking Thebanking sector's special nature, as discussed in the following paragraph, would justify that it adopts the second broader definition of corporate governance, because banks would typically require the depositors in addition to traditional shareholders and Arun T. (2004) reveals that government intervention is also an inseparable section of banks' corporate governance. The potential conflicts between these three parties may construct our following discussion of the corporate governance issues. For example, even if there are in place depositary insurance provided for the savers in the banks, the bank managers are still not prohibited from over investing their clients' money into areas whose risks exceed normal risk-return dynamics. Another example occurs when the shareholders always tend to maximize the risk level than is socially optimal while the policy makers would try their best to prevent the banks from being overly risky. This has been one of the fundamental moral hazards that we have witnessed in the 2007 credit crunch and 2008 world financial crisis and triggered public sector involvement into "saving" or "nationalisation" of these private banks and a series of public controls including interest rate ceilings, reserve requirement and stress tests etc. Therefore, the unique nature of banks may raise the needs for better corporate governance initiatives than other industries. 4.020Corporate governance in UK banks 4.1 Overview of corporate governance inUK18A number of key attributes of corporate governance in UK banks have beenobserved inrecent years. Firstly, in the UK, there was an obvious trend towards the ownership structure as a greater concentration of ownership is gradually moving towards16the hands of institutional investors, such as hedge funds andpension funds.30(Mallin C., Mullineux A., Wihlborg C. , 2005).It is reported that about 80 percent of UK's stock market is capitalised by the institutional owners, much higher than that of the United States. Secondly, institutional investors have become more and more interested in reconstruct their portfolio to ensure a proper diversification of risks among domestic market and overseas market. Thirdly, there is an increasing trend of rapid and timely information transfer in the global markets with more advances in technological transformations and global financial institutions are in close contact with each other to ensure they have common grounds to build up in their corporate governance. Fourthly, it seems28that corporate governance is starting to act as avital role in securing the confidence and34a major contributor to the image of thepublic company to directly affect its performance13in the stock market and wider economic context. Theregulation on13corporate governance in UK is the Cadbury Reportin 1992 (Cadbury, 1992) namely the3Report of the UK Committee on the Financial Aspects of Corporate Governance, chaired by Sir Adrian Cadbury.The report recommended that companies should be three ways to improve its corporate governance, i.e. an audit function which includes the responsibility of non-executive directors (NED), a remuneration function for recommending property compensation package for directors and a nomination committee helped to establish12a formal and transparent process for the appointment of directors into thecompany's board. It is postulated that3there should be at least three independent NEDs and board balance,suggesting a balance of executives compared to NEDs to ensure that there is nosingle person who can control over the board'sdeterminations. A clear split up between the24Chair of the Board as well as the CEO is suggested toprevent too much emphasis on one individual. This report is additionally complemented with Combined Code (1998, revised142003) to take account of various developments in UK and theglobe and the later version suggests that financial service firms to have a formal dialogue between the boards and the management in place in the banking corporations. 4.3 Walker D.'s Review of Banking Corporate Governance Reform

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