The Concept of Governance in Hong - Research Paper Example

 «The Concept of Governance in Hong» Introduction The prevalence of different countries within the economy is one that is continuing to change based on societal needs and the emergence of globalization. A leading area that is a part of the changes and initiatives is in Hong Kong. As a growing entity, this country also has to change and identify the corporate governance that is used within companies. As this is done, it is providing corporations and different individuals with new possibilities. The initiatives that are being taken and the alterations that are occurring are then leading into new responsibilities, restrictions and alternatives for those interested in business. Currently, investors, businesses and individuals are experiencing valuable changes in relation to corporate governance, all which are providing new options for those that are interested in valuing regulations and policies for business. This research paper will examine the corporate governance in Hong Kong as well as how this is changing the economic and business environment at both a local and international level. Background The concept of corporate governance in Hong Kong is identified as the stock ownership of a company and how it relates specifically to the operating performance of a company. The importance of corporate governance is one that is known to directly affect the performance a company. This not only changes the way in which companies work in relation to consumers with risks and performance but also directly changes the stock market and the performance of different firms. It is known that those with a strong performance also have stronger corporate governance that accompanies their needs. Generally, this includes the relationship between the performance and the stock market as well as the way that the finances and profit and loss accumulates throughout the year. More importantly, this leads to the management that is within the corporation and the way in which the internal environment functions. The amount of performance changes the relationship with the shareholder rights and also provides insight into the risk of the company and the potential that it has for the future. Those that are interested in investing in a specific corporation will look to this perspective first to define what is needed with the management, infrastructure, turn over and overall performance to create a relationship with stockholders. Because of this, most corporations consider the governance to be one of primary concern (Bhagat, Bolton, 3, 2007). Importance of Research This research will help to define the direct relationship that corporate governance has on all of the structures of a specific corporation. Specifically, there will be an analysis of the governance from various perspectives as well as how effective this is within various parts of a corporation. More importantly, there will be an analysis of how this affects the economy and the overall environment with the industrial sectors in Hong Kong. The corporate governance will not only be evaluated from specific businesses but will also be seen through the way in which it features and changes the different concepts that are in Hong Kong. More importantly, there will be an understanding of how this will affect other areas within globalization. The more that the concepts of corporate governance are understood the more there can be an overall evaluation and understanding of how this directly affects corporations and the economic environment of Hong Kong. Literature Scope Currently, there is a set of literature that explains corporate governance as well as how it affects the performance of a company as well as the economy. More importantly, there is an understanding that there needs to be a combination of elements to change the environment, specifically through corporate governance. The problems and prospects of corporate governance and the way that it affects both small and large businesses are also understood in terms of corporate governance in Hong Kong. However, there is not an understanding of how the current system is affecting Hong Kong with limitations on the way that this impacts other elements of the economy and society. By creating a deeper understanding of the concept of corporate governance and by adding in a deeper understanding of how specific factors affect businesses and the economy, there can be additional sets of information for the concept of corporate governance. Research Question The question asked in terms of corporate governance will be related to the way in which the terms and conditions affect different areas of society. Specifically, the research question will ask how corporate governance affects different industries within Hong Kong, as well as how it affects the overall economy. Objectives To further define corporate governance, there is the need to evaluate the different levels of impact that it has on various industries and how these levels all alter the economy and businesses. The research question will specifically ask: 1. To investigate global corporate governance affects the internal environment 2. To identify effective corporate governance structures 3. To identify corporate governance of different industrial sectors in Hong Kong 4. To evaluate and analyze corporate governance features of Hong Kong Through these different objectives, there will be a well – rounded perspective of the current corporate structure in Hong Kong as well as how this is affecting various levels of the environment. Literature Review The concept of corporate governance is one that is known to affect both small and large firms in Hong Kong. A structure that is used as a common perspective in the area is based on the family firms that have been passed down between generations. The family firms that have been developed are able to incorporate the corporate governance to link to social responsibility and to understand the current conceptions that are in the environment. There is also the understanding that the governance is supposed to change the conduct of ethical businesses so they can monitor the activities within a given corporation. It is known that family firms have difficulty with corporate governance, specifically because the responsibility is based on the specific family members and the movement into different generations. More importantly, there is a focus on maximizing profits from shareholders without concern for social responsibilities and community well – being. The gap that is in family firms with corporate governance is one that becomes problematic, specifically because there isn’t a focus on the ethical responsibilities and the relationship to shareholders and others interested in the business. For most firms, this gap creates the inability to continue to progress within the corporation (Shea, 2007). Even though there are gaps in corporate governance, it has also been found that there is a value to the structure and policies that are associated with the companies. Through a current research study (Zhou, 5, 2005), it was found that through corporate governance alone, there is an increase in investor relationships by 5%. This difference is significant enough to show that the concept of corporate governance can directly affect the firm and the capital cost in a positive manner. More importantly, it can continue to attract investors and those that are interested in the corporation. The stock market and the ability to gain profit and loss within the corporation begin to be instigated by having the basic policies and procedures in place through corporate governance. The extra responsibility is one that can then be seen to not only value the basic structure of companies but also helps to increase the firms overall performance and ability to become successful within a company. It has also been found that specific types of governance, investors will be more attracted to investing in a company. There are specific types of responsibilities as well as qualities which determine the overall response. Several investors use this as a formula and a method to begin looking into investments and to determine the amount of success in which they believe a business will have (Zhou, 5, 2005). The concept of having more success within a corporation is not only seen through the investor relations that are created. Other types of outcome within a business are also seen as a part of the growth within a company. Specifically, it can be seen that there is lower costs of capital and higher share values from companies that have corporate governance. The result is the ability to raise the worth and value of the company while regulating specific measures that provides companies with more opportunities. More importantly, the overall concepts that are associated with the company, specifically with the outlook from potential consumers, begin to change. When there is a set of ethics and standards in place, most consumers will begin to have a different outlook on the corporation. Specifically, there will be a higher level of trust and the belief that the ethical responsibilities prevent scams and other problems within the internal environment. The overall impression that corporate government sets and the ethical considerations and levels of awareness that it provides is able to create a different level of transparency with the business. Hong Kong, more than other places on the globe, shows this transparency and the level of standards that need to be met (Ho, 8, 2003). The main attributes that are linked to corporate governance have also led to different frameworks and methodologies that businesses find better to use within their structure. There are four main attributes that have been defined when creating corporate governance and the way in which they operate best. The directors on the board, dominant personalities and the percentage of family members are all known to make a difference in the way that businesses function as well as how they work with different policies and regulations. More importantly, this sets different requirements for controls over the business. When it is a family business, there are more transparent needs that are a part of corporate governance and the policies that are followed. This is specifically because of the management and operations as well as the expectations that are a part of the Hong Kong culture. With the different audit committees and board of directors, it helps to monitor and create different expectations that are associated with the policies needed. Committees are then able to create a different set of options for controls within the various regions (Ho, Wong, 1061, 2001). As corporate governance becomes more regulated within Hong Kong are also extra expectations and standards that are beginning to rise. The financial crisis, which began in 1997 and 1998, specific to Asia, also led to the need to create ethical standards. As the corporate governance began to rise at the same time, it brought a level of recovery to those in the Asian market. The individuals that held to the specific ethical traits and standards were able to move forward within the economy. As a result, the macroeconomy began to move forward and turn in a different manner. It was noted that the specific association with corporate governance led to the rise in management, associations with investors and the ability to rise within the economy. Others that began to suffer from the economic downfall noted that asset prices fell as well as the management at the same time. It can be seen that the relationship to the internal structure, such as through the corporate governance, is one that directly impacts the overall economy and the corporate needs (Johnson et al, 297, 1999). The changes in the economy are also known to change other values that are within corporations, specifically which relate to market value. Those that are using market valuation have found that the more structured entities in Hong Kong also change the market. The corporate governance that is used is not only beginning to affect the values with the finances that are available. There are also changes within the market on a broader scale. The movement into globalization is the prime example of how corporate governance is affecting Hong Kong and the economy. Those who have corporate governance are not only able to have basic investors within the region. Foreign investors and those that are interested in Hong Kong enterprises are looking at the structure and way in which the different entities function. The positive market valuations not only include specific shares and ideologies related to corporate governance but also have a direct and positive impact on the foreign investments and changes within the stock market (En –Bai et al, 599, 2004). The different aspects that are a part of the foreign relations and investments are not only seen in terms of one angle of corporate governance. These are furthered by the different aspects of governance and the way in which the various ethics are related to this. A standard that many of the corporations use is based on the concept of voluntary disclosure. This allows outside volunteers to move within the corporation and to have specific levels of information that is disclosed to various investors. By having this, there is the ability to build strategies for investors while advertising various components of the company to investors. More importantly, there are disclosures that build trust among investors and which create different levels of trust. Since Hong Kong still has the family corporations as well as the other companies, there is the ability to create disclosures that build trust among the different entities. By doing this, there is the ability to show that the levels of ownership created provide various levels of trust among those that are interested in investments (Eng, Mak, 325, 2004). Even though these values are currently in place, there are still some considerations related to this that are based on the controls that are being used. The corporate governance that is expected at certain levels is related directly to not only the firms but also expectations and standards at different organizations. Outside organizations and the government are partly responsible for setting corporate governance and of revising the standards that are set in place. The institutional environment that is created from these controls is providing specific opportunities that allow corporations to move forward with the different aspects of their firm. At the same time, the firm values are based on accepting the ethics and standards set in place by the government values while creating more ethical standards and following the values that are outside of these needs. By doing this, there is the ability to create a different level of firm value. For corporations, this provides them with the ability to move outside of institutional controls and creates either a negative or positive value on the corporation. As the standards are seen by investors and others outside of this particular arena, there is the ability to create a different level of controls for specific firms (Lijun, Yiqiang, 832, 2005). To further this, many corporations have found different ways to compete using the corporate structure in different manners. Since there are known aspects that create different options for the company, there is also different corporate structures that are used to change the corporate governance that are used. It has been found that the internal market and structure and the way that different corporations perform are directly related. This combines with the information presented to stockholders and the way in which individuals respond to the company. Those who are more likely to invest in the company combine the corporate governance with the structure, ownership structure and overall responsibility within the firm. Since the structure also directly relates to the corporate governance and other concepts that are essential to the corporation, there is also the ability to increase the manageability and the effectiveness within a corporation. At the same time, those that have an alternative structure that is specific to business in Hong Kong are suffering from the corporate structure that is currently a part of the main system (Xu, Wang, 75, 1999). Methodologies To find the most effective means for the corporate governance and to define how this is affecting the environment, specific levels of investigation will be incorporated. The first will be sets of research that define the current economy and the way that this is attributed to the corporate governance used. The newer policies and procedures that are linked to this as well as the way in which businesses are responding to the methodologies will then be incorporated with this at different levels. There will be an average of 10 different areas of the economy that are defined, specifically to show how different regions and types of businesses are responding to what is occurring within the economy. After the initial research and investigation has been done, case studies on different businesses will be defined and understood. The case studies will include family owned businesses as well as several businesses that are under different corporate structures. There will be 6 case studies that are used, 2 for family firms, 2 for medium sized corporations and 2 of large corporations. One example of the corporations that will be included are from the Hang Seng index, which has specific stocks as one of the largest corporations. Each of these will also have diverse corporate structures so there is a deeper understanding of what is occurring within the various businesses. There will be an average of 10 years of data taken with the changes in corporate governance since 2000 being the main focus. Understanding the responses, corporate governance and the way in which investors respond will all be investigated at this level. This will be combined with the different concepts that are a part of the businesses and how these respond at a business, local and international level. Comparing and analyzing these different concepts will then create a different understanding of how businesses work within different contingency plans. After these evaluations have been completed, there will be different industrial sectors that are identified within Hong Kong. Each of these will be evaluated with the amount of corporate governance that is a part of the industry as well as the difference that this makes with each business. Specifically, the corporate structure, financial considerations, investments and stock holders will be analyzed. These will be related to the corporate governance that is a part of each of the areas and will provide insight into how the governance changes the overall functioning with the external environment. The information collected will then be evaluated with the overall economy and business structure that is within Hong Kong. Analyzing this will create a different understanding of how corporate governance not only affects the corporation but also how it relates to the other parts of Hong Kong and the external environment. Time Schedule The overall time that will be used to analyze each of these concepts will be within one month. The initial research can be done within one week, all which will be based on gaining deeper insight into the corporate governance within Hong Kong. The evaluation of different companies and the ability to find family firms as well as alternative corporations will be linked to this to gain extra insight about the different ways in which businesses operate with corporations. This will take two weeks, specifically which will be dedicated to finding specific firms and analyzing each of the components. The final analysis and evaluation of both Hong Kong and the relation with businesses will then be completed within a one week time frame. Resources The resources that will be used will begin with different case studies and evaluations that can be found through research online and through library materials. These will relate specifically to the industries in Hong Kong and the current events that are taking place in relation to corporate governance. The case studies that will be evaluated will come from corporate websites that link directly to Hong Kong. The firms will be divided by several samples of family firms as well as medium and large size firms. Finding the information on corporate governance within each of these companies as well as the way in which they relate to the overall economy and international structures will then be evaluated through statistical information and evaluations that are available. The resources will then be analyzed and compared through statistical concepts and overall evaluations. Contingency Plan If there is not the ability to follow the specific methodology, then different terms can be set. Since the information is based on research, there will be the ability to alter which type of research is done as well as what is incorporated into the case study. Redefining the goals and setting the objectives to match with the information that can be found is the best way to determine what needs to be done with the research study. There is also the possibility of changing the focus of the research study through more direct contact. Placing an interview and basic survey for different companies to find information and giving a comparative analysis can be used as a secondary option to make sure that the correct information is found. To do this effectively, there is the need to create a survey that can be used through an email or online portal while gaining volunteers that would be most interested in the study to define the different capacities of corporate governance. Conclusion The concept of corporate governance in Hong Kong is one that is raising several questions within society while creating a different approach to businesses. It can be seen that the ability to have specific standards and ethical considerations is providing businesses with new opportunities to negotiate and work with investors locally and at an international level. While some of these are related specifically to the government and different organizations, the alternate corporate structures and the way in which the environment relates to corporate governance is creating either a gap or new opportunities for businesses. Understanding the capabilities and limitations of this and redefining the needs and means of this concept then creates new options for those that are interested in changing the way in which companies operate. References Bhagat, Sanjai, Brian Bolton. (2007). “Corporate Governance and Firm Performance.” Colorado: Leeds School of Business. Bai, Chong – En, Qiao Liu, Joe Lu, Frank Song, Junxi Zhang. (2004). “Corporate Governance and Market Valuation in China.” Journal of Comparative Economics (32), (4). Eng, LL, YT Mak. (2004). “Corporate Governance and Voluntary Disclosure.” Journal of Accounting and Public Policy (22), (4). Ho, Simon. (2003). “Corporate Governance in Hong Kong: Key Problems and Prospects.” The Chinese University of Hong Kong. Ho, Simon, Kar Wong. (2001). “A Study of the Relationship Between Corporate Governance Structures and the Extent of Voluntary Disclosure.” Journal of International Accounting, Auditing and Taxation (10), (2). Johnson, Simon, Peter Boone, Alasdair Breach, Eric Friedman. (1999). “Corporate Governance in the Asian Financial Crisis.” Deep Blue: University of Michigan. Lijun, Xia, Fang Yiqiang. (2005). “Government Control, Institutional Environment and Firm Value: Evidence from the Chinese Securities Market.” Economic Research Journal: (5). Shea, Hubert. (2007). “Corporate Governance and Social Responsibility of Family Firms in Hong Kong: A Case Study of Hutchinson Whampoa Limited. (WHL). University of Newcastle: Graduate School of Business and Law. Xu, Xiaonian, Yan Wang. (1999). “Ownership Structure and Corporate Governance in Chinese Stock Companies.” China Economic Review (10), (1). Zhou, Lynda. (2005). “Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market.” Department of Economics and Finance: City University of Hong Kong. Read More