A dynamic theory of corporate governance should be considered for transition economies that concentrate mainly on gradualism in institutional and legal reforms. Aside from pacing and sequencing, emphasis is drawn to the complementarity exhibited in structural reforms for banking, state-owned enterprises, and the securities sector. Under a gradualist strategy, the theory draws attention not only to the merits but also to the limits of the “transitional” institutions that China adopted. Despite the fact that transitional institutions are not entirely consistent with the basic features of the market, these prove to have a significant impact on improving efficiency during the economic reform's early stages. However, these institutions should be either abandoned or adjusted at later stages of transition. This chapter emphasizes the major findings of the study as well as the implications attributed to China's experience.
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