Introduction
China will soon become the largest economy in the world, yet finance scholars in the international
academic community still know very little about financial management policies and practices in China.
There are several reasons for this lack of knowledge. First, it is only recently (primarily during the past
decade) that China has transitioned from a planned economy to a market economy, a transition that is
stil lnot complete. Second, and on a related note,many stocks in China used to be primarily state-owned
and/or nontradable, making studies on China’s financial management practices not generalizable to
capital-market-oriented economies. Third, China’s stock markets are young, as they were opened
only in 1990. Fourth, the quality of Chinese financial statements used to be questionable, and many
important data items were unavailable until recently. Fifth, and perhaps most importantly, China’s
economy, along with its regulatory and institutional environment, changes rapidly. Indeed, papers on
China’s financial markets published in academic journals ten years ago may report findings not even
relevant or useful today.