Challenging the norm: Organizational oversight and firm value in China’s growth paradox

Abstract

The classical theories of corporate governance, largely developed in the context of early industrialized economies, posit that robust governance mechanisms are essential for enhancing firm performance and shareholder value. Governance frameworks are critical for maintaining transparency, investor confidence, and ethical conduct in business operations. However, excessive regulatory compliance can sometimes constrain managerial flexibility and strategic decision-making, leading to inefficiencies. The remarkable economic growth of developing nations—particularly China—despite variations in governance models challenges the traditional one-size-fits-all approach to corporate governance. This study explores the paradoxical relationship between corporate governance and enterprise value by analyzing a panel dataset of 151 Chinese firms over a 12-year period. Employing the ESG governance pillar score as a comprehensive measure of corporate governance quality, the study finds that even moderate levels of governance compliance are significantly and positively associated with enterprise value. These findings suggest that while governance practices are crucial for ensuring accountability and stability, a balanced approach that does not stifle managerial autonomy may yield better firm performance. The results contribute to the growing discourse on contextual corporate governance in emerging markets, emphasizing the need for adaptive governance frameworks that align with local economic and institutional realities.