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Abstract
In the context of economic globalisation, China is internationalising its economy with more and more Chinese companies doing business internationally. Both China s economic internationalisation and the development of Chinese companies have resulted from China s transitioning from a centrally-planned and closed economy to a market-oriented and open economy. This transitioning has taken place over the past three decades. With such a short history of market development Chinese companies doing business internationally face a need to convince the world that they are credible. This thesis explores the issue of company credibility in China. In particular, it focuses on understanding financial reporting processes in the context of the market-oriented reform implemented as China transitions from a centrally-planned system and internationalises its economy.
This study uses the qualitative multi-case research approach to investigate the processes by which three Chinese-listed companies produce their audited corporate reports. Among these companies, two are listed in the Shanghai Stock Exchange, one in the A-Share market and the other in the B-Share market. The third company is listed in Hong Kong Stock Exchange. All of them operate in the same municipality in north China. The research design and methodology centres on three levels of research. At the first level, the thesis discusses the key elements involved in financial reporting practice as accepted internationally. At the second level, the thesis describes the institutional context of China in transition from a centrally-planned system to a market-oriented system and discusses how this transition has affected the evolution of Chinese enterprises and their financial reporting practice.
At the third level, the thesis investigates how the case companies practice financial disclosure in respect of their reporting processes. The investigation relies on direct observation of the physical settings of the case companies, published company documents, and interviews with key practitioners who were in or were associated with these companies. These informants were chosen because they had a good knowledge and personal experience at how these companies report their financial position. The focus of the investigation is laid on these companies development history, current business operations, and financial reporting processes. The investigation reveals that these companies experience the same series of general processes for financial reporting, but that these are different from those as expected in the international rules. Further, these processes involve different practices for the individual companies. As reflected in the investigation, both of these differences arise from the government system of China which while in transition from a centrally-planned system, continues to give government a central role in business activities.
In light of what is known about the context of China and based on the practitioners views of their own activities, it is suggested in this thesis that the institutional context in which these companies operate demands that their reporting go through a series of processes which involve the government system at various levels. At these levels, the government system has significant impacts on the reporting practices of these companies. So, the government system represents a significant barrier for the application of international reporting rules. In essence, this barrier is because the international rules presume that the main purpose of financial reporting is informing the capital market, whereas in the practice of these companies the main purpose of financial reporting was informing the relevant government. How they do it depends on their different historical relationships with the relevant level of government. So, although these companies go through the same general reporting processes, their reporting practices are different from each other. Thus, financial reporting is practiced by these companies idiosyncratically with a principal determinant in their capacity to apply international rules being their specific histories.
Overall, it is suggested by this thesis that China may not yet have the institutional context required for companies to practice financial reporting using international reporting rules. As such, when Chinese-listed companies are required under regulation to report their financial position to the investment markets, they may go through some processes for reporting which are different from those expected in international rules. In addition, given the historical specificities of their course of development, the institutional context in which these companies operate may be different for individual companies so that their reporting practices are likely to be different from each other. Therefore, this thesis concludes that Chinese-listed companies may not practice financial reporting following international rules and their reporting practices may be idiosyncratic.