On 28 June 2021, CCTL Corporate Law and Governance Cluster seminar organized a seminar on the topic “Are U.S.-Listed Chinese Firms a Minefield? A Board Perspective’ delivered by Professor Chao Xi.

During the presentation Prof. Xi, raised and aimed to address two research questions: a) Are the U.S.-listed Chinese firms, as a group, truly a corporate governance minefield to be avoided at all costs? b) Did the Luckin scandal reveal the commonly shared, deep-rooted governance deficiencies of the U.S.-listed Chinese firms or was Luckin an outlier?

In order to address these questions, Prof. Xi and his coauthor created two unique comprehensive datasets to empirically examine the corporate governance and in particular, the board and board committees of the NYSE- and NASDAQ-listed Chinese firms. Prof. Xi explained some challenges in constructing the datasets including issues with the definition of the U.S.-listed Chinese firms. The sample firms have their place of incorporation in different jurisdictions and a significant number of them were incorporated in British Virgin Islands or Cayman Islands. By invoking the foreign private issuers (FPIs) exemption, they are entitled to follow its home country practice in lieu of most corporate governance standards. Since both BVI and Cayman Islands grant companies an extraordinary degree of contractual freedom and flexibility, FPIs incorporated in these two jurisdictions can therefore opt to deviate from the corporate governance standards set out by the SEC, NASDAQ and NYSE.

The research indicates that the Chinese companies listed on the NYSE and NASDAQ, on average, have less independent board of directors and board committees than S&P 500 and Russell 3000 firms do. Care should be taken in interpreting these findings, however. Board and board committees of Luckin were among the least independent in the group of NASDAQ-listed Chinese firms. Prof. Xi concluded that their research did not offer much support to the views categorically labeling the whole cohort of the U.S.-listed Chinese firms as a minefield insofar as a border level governance is concerned, but further research is still warranted in this area.

Prof. Lutz Christian Wolff, the Dean of CUHK LAW, chaired the seminar and moderated the Q&A session.

The seminar was based on an article of Prof. Chao Xi and CUHK LAW PhD student Yurong Huang entitled “Are U.S.-Listed Chinese Firms a Minefield? A Board Perspective”, which has been published in The International Lawyer 54 (2021) 201.

The article is available for download here.