Corporate governance and recovery performance: Evidence from Chinese manufacturing firms

Abstract

This study examined how corporate governance relates to the recovery of Chinese listed manufacturing firms after exiting special treatment (ST). Using a sample of 182 A-share manufacturing firms that recovered between 2009 and 2023 and remained out of ST for at least three consecutive years, the study treated recovery as multidimensional: profitability restoration (ROA, ROE), financial resilience (ZChina score), and market confidence (Tobin's Q). A two-step system GMM dynamic panel model with year effects was used to control for performance persistence and endogeneity. Results showed that overall governance quality (G score) had a significant positive correlation with profitability restoration and financial resilience, indicating that better governance helps stabilise and improve recovery after ST exit. However, market confidence showed a different pattern: G score had a significant negative correlation with Tobin's Q, whereas the share of female directors and political connections had significant positive correlations with Tobin's Q. Overall, recovery is not a single-track process. These findings provide guidance for policymakers, board members, and investors when gauging governance quality and assessing sustainable recovery.