Correspondence: Oliver M. Rui, Department of Finance and Insurance, Lingnan University, Tuen Mun, NT, Hong Kong, PRC. Tel: +852 2616 8950; Fax: +852 2462 1073; E-mail: mafirth@LN.edu.hk

¹is a Chair Professor of Finance at Lingnan University. He is a CIIA and CFA. Previously he held academic appointments in Asia, Europe, New Zealand, and North America, and he has worked as an accountant and investment analyst in Britain. His research interests span current issues in accounting and finance. He is a member of the Hong Kong Securities Institute and sits on its examination panel.

²is a lecturer at the Hong Kong Community College. He got his PhD from the Hong Kong Polytechnic University and his MBA and BSc from the University of Hong Kong. His research interests include corporate governance issues such as executive compensation and CEO turnover.

³is an associate professor at the School of Accountancy of The Chinese University of Hong Kong and is a Chartered Financial Analyst. He holds a BS degree in International Economics from the Institute of International Relations in Beijing, an MSc degree in Economics from Oklahoma State University, and an MBA in Statistics and a PhD in Finance, both from the University of Houston. Dr Rui has published more than 30 academic papers in leading international journals. Dr Rui serves as a member of the Panel of Examiners of the Securities Industry Examination of the Hong Kong Stock Exchange and is a member of the Advisory Board of the Business Valuation Forum in Hong Kong. He is also a visiting financial economist at the Shanghai Stock Exchange and a vice president of the Hong Kong Financial Engineering Association.

Received 4 February 2008; Revised 4 February 2008.

Abstract

Our study analyses the relations among agency costs, ownership structure, and governance mechanisms in Chinese listed firms. We find that firms with foreign shareholders incur higher agency costs. Legal person shareholders, our proxy for institutional investors, and government ownership have no impact on the level of agency costs. We also find that boards with a majority of outside directors are not associated with lower agency costs. There is some evidence that concentrated ownership is associated with lower agency costs. Although Chinese listed firms have engaged in ownership and governance reform, this has not manifested itself in a reduction in agency costs.