The battle for control of China Vanke, China's largest property developer, among Vanke's management and two largest shareholders - rival property developer Baoneng Group and State-owned conglomerate China Resources Holdings, has caught massive public attention. Vanke management executives attempted to introduce an around $7 billion restructuring plan over the past year to make Shenzhen Metro Group its biggest shareholder through an equity swap to stave off Baoneng's hostile takeover.

But both Baoneng and China Resources have expressed opposition to the transaction, while Baoneng also proposed on Sunday to oust the directors of Vanke's current board.

We believe the ongoing battle could bring significant changes and improvements in the governance structure of domestic listed firms, which is beneficial to the protection of stakeholders and the long-term development of Chinese enterprises.

Various actions of parties involved in the battle will be protected and supervised by the law, and understood and respected by the market participants - as long as they are legitimate and compliant.

If a listed firm is under threat of a hostile takeover, it can enormously inspire the company to improve its management mechanisms, refine governance structure and boost operating performance. Replacing an incompetent management team through a hostile takeover can effectively reduce unavoidably high agency costs.

A listed firm's lack of efficiency will be reflected in continuously declining stock prices. If such a situation is noticed by an acquirer which has then replaced the board, this might bring considerable benefits to shareholders. Vanke's current management team has long neglected the fact that its shares are undervalued, which gave Baoneng an opportunity to conduct the hostile takeover.

Yet a hostile takeover sometimes can be destructive to the value of a listed firm. During a fierce takeover battle, there will be a huge waste of social resources; and if the takeover succeeds, the target company's management team will be replaced.

The previous management's long accumulated network of social capital with other organizations is likely to be broken, so is the established trust and cooperation with others. It is regretful that Wang and the management team has long-neglected a mechanism design and establishment to avoid hostile takeover, and consequently they are paying a price for being overconfident.

Meanwhile, the Vanke story has also reminded founders and management teams that they should highly value the building of governance structure during the corporate development.

And lastly, the dominant role of human capital has to be admitted. Many people have underestimated the human capital Wang Shi and his team has devoted to the development of Vanke. Clarifying the issue of human capital and offering relevant guidance would be a major step forward in the improvement of China's Company Law and the modernization of corporate governance in the future.

The authors are a professor of the Business School of Nanjing University, and associate professor of School of Finance and Statistics, East China Normal University. bizopinion@globaltimes.com.cn