The determinants of board structure and firm long-run performance of Chinese SMEs

<table><tr> <td><p>This study examines the factors determining board structure at IPO, as well as the long-run performance of firms after their IPO in the context of China—a transitional economy. Specifically, three characteristics of the board are considered: board size, board composition (i.e outsider ratio) and board political connection (i.e CCP membership ratio). This study focuses on the roles that two contrasting institutional investors – state and venture capitalist (VC) play on board structure and the long-run performance of firms. Based on a sample of 217 Chinese SMEs listed on the SME board of Shenzhen Stock Exchange for the period of 2004 to 2010, the results suggest that state ownership is positively associated with board size and CCP membership ratio and negatively associated with outsider ratio. In addition, there is a negative relationship between state ownership and firm long-run performance and this relationship is mediated by board structure. Contrary to the findings in developed markets, this study suggests that VC involvement does not lead to more efficient board structure and superior performance in Chinese SMEs.</p></td></tr></table>