1. Fund Governance and Collusion with Controlling Shareholders: Evidence from Non-tradable Shares Reform in China Authors: Q. Jin & V. Yu Discussion by John Nowland

2. Summary Previous research has documented a negative relationship between institutional ownership and compensation ratio. The explanation is that institutional owners collude with the non-tradable share owners to set lower compensation in exchange for future business/favours. This paper differentiates between different institutional investors to determine if certain types of funds are more likely to collude than others.

3. Comments Very interesting setting. I can understand the argument that institutional investors could collude with owners of non-tradable shares (especially if they are both state-owned). Some examples of the follow-on benefits of this collusion would help to strengthen the argument. Paper is generally clear and well written. Authors have the difficult task of explaining the institutional background and calculation of the compensation ratio.

4. Comments Empirical analysis can be extended:  Have a regression without fund interaction terms and then report Tables 5, 6, 7 and 8 together in one table.  Talk about the absolute value of relationships rather than just differences e.g. foreign funds have net positive relationship while local funds have negative relationship.  Table 9 has all institutions rather than just mutual funds. Are there any differences in the interaction results for NON_FUND as this would help to strengthen your argument to focus on just mutual funds?  Could split analysis into state-owned companies and not or interact STATE with interaction terms.

5. Comments Other explanations:  Is it possible that foreign funds invest more in better performing firms and that is why both better performing firms and those with more foreign institutional ownership have lower compensation ratios? Try to establish which companies foreign funds are more likely to invest in.  Is it that foreign funds have better governance or are they unable to derive benefits from collusion? They want to be “bad” but don’t know how.  H3 – more institutional ownership in funds, forces funds to collude with owners of non-tradable shares? Two-stage collusion? Needs more explanation of these more complicated relationships…