Why corporate governance matters in M&A

Author: IFLR Correspondent | Published: 16 Apr 2019

Though the Chinese economy is now the second-largest in the world, it is fair to say that, overall, the development of corporate governance has not kept pace with the speed of economic growth. As a result, new instances of financial fraud by Chinese public companies are being identified all the time. Corporate governance is now one of the most critical issues affecting Chinese companies facing increasing international investor scrutiny.

Weak governance of group companies can cause serious and lasting damage to the entire group. If fraudulent activity is identified, a company may have to delay publishing its results, restate historical reported earnings, or face significant regulatory penalties or lawsuits from different stakeholders. Such companies’ stock prices are also likely to drop significantly, and in the worst-case scenario, the company could be forced to delist, or may even face solvency issues.

Once potential fraud is identified, a company must often spend...