Does the reputation mechanism apply to independent directors in emerging markets?Evidence from China

We examine whether reputable independent directors improve firm performance and governance quality in emerging markets,using data from China.Firms with such directors,measured as the number of directorships in other listed firms,have higher profitability,operating efficiency and productivity.They suffer from fewer agency problems,pay more cash dividends and have lower likelihoods of receiving modified audit opinions and participating in financial disclosure-related irregularities than their counterparts.In China’s unique institutional context,the reputation mechanism for independent directors applies to firms in regions with weak marketization environments,nonstate-owned enterprises and firms without political connections;it also applies when external governance is weak.Overall,reputable independent directors appear to occupy valuable advising and monitoring roles and compensate for weak institutions and governance in China.

Are academic independent directors punished more severely when they engage in violations?

We use a sample of Chinese A-share listed companies from 2003 to 2013 to explore the reputation damage and overflow effect of academic independent directors who have received supervisory punishment. We find that when companies violate information disclosure rules, the market punishes academic independent directors more severely than nonacademic independent directors for these violations. Furthermore, companies employing punished academic directors face greater declines in their stock price than companies employing punished nonacademic independent directors during a relatively short window before or after the punishment is announced. The punishment of academic independent directors influences the employment of other scholars in the same field and results in a negative overflow effect. This study provides evidence of the market's differential reactions to independent directors with different backgrounds; the findings reflect the double-edged sword of one individual's reputation on organizations.

Does independent directors' monitoring affect reputation? Evidence from the stock and labor markets

Using novel data on independent directors' opinions in China, we investigate the stock and labor market effects prompted by independent directors publicly saying ‘‘no" to major board decisions. We find that the market reacts negatively to modified director opinions, but positively to firms interlocked with the directors who said ‘‘no." We further find substantial turnover and decline in board seats after independent directors issue modified opinions. Overall, we identify a dilemma in China whereby the labor market does not reward vigilant directors for standing up to firm insiders, although investors add a premium to effective board monitoring.

Concurrent independent directors in the same industry and accounting information comparability

Using a sample of Chinese A-share listed companies during the 2008–2019 period,we explore the impact of concurrent independent directors in the same industry(hereafter CIDSI)on accounting information comparability.We find that CIDSI can effectively promote accounting information comparability and that this effect is realized mainly through inhibiting earnings management.We also find that CIDSI can provide broader industry perception of the company’s board reports.Variations in concurrent companies and internal and external environments have significant moderating effects on the relationship between CIDSI and accounting information comparability.This relationship contributes to reducing audit fees and the possibility of receiving nonstandard unqualified audit opinions.Our findings have implications for companies by demonstrating the importance of recruiting independent directors.

Do independent directors play a political role? Evidence from independent directors' death events

We propose that independent directors are likely to play a political role in an institutional setting featuring weak investor protection and strong government intervention. Using Chinese data for 2001–2014, we investigate whether the stock price reaction to an independent director's death is related to his or her political connection. We find a stronger negative reaction to the death announcements of politically connected than politically unconnected independent directors. The magnitude of the reaction is positively related to directors' political rank, and cannot be offset by their firms' political capital. However,we document no evidence of politically connected independent directors exhibiting superior monitoring or consulting performance. Additional analyses show that firms are more inclined to appoint a politically connected independent director as a successor if his or her predecessor also had political connections. Our study broadens scholarly understanding of independent directors' role in a non-Anglo-American setting.

Resignation of officials as independent directors and firm performance

In 2013,the Chinese government implemented Rule No.18,which suspended the directorships of incumbent government officials and precluded those who retired within the past three years from serving as independent directors for listed firms.The surprise implementation of Rule No.18 triggered a wave of resignations among official independent directors(OIDs).The event provided a unique opportunity to examine the impacts of the political connections of board members on firm performance.We applied a difference-in-difference technique to empirically investigate the effect of OID resignations on firm performance from the perspectives of resource dependence theory and social capital theory.The results indicate that the resignation of OIDs had a significantly negative effect on firm performance,as measured by Tobin's 0 and firm leverage.This also confirmed the importance of independent directors'political connection on firm performance,as discovered in prior research.However,this influence varied across OIDs'heterogeneity,external environment and firm ownership.The results indicate that political connections may not be necessary channels for firms to achieve success.

The Empirical Study of Board Structure and Firm Performance-Innovative Small Enterprises in China

This study took small enterprises listed from 2010 to 2015 as the empirical object.The board size,CEO duality,and ratio of independent directors were independent variables.The return on total assets,return on shareholders’equity and earnings per share were taken as the dependent variables,and three hypotheses were tested with SPSS.It is found that the board size was positively correlated with firm performance,but was not significant.There was no significant correlation between the ratio of independent directors and CEO duality on firm performance.This study suggests that optimizing the leadership structure of the board of directors can help improve the firm performance of enterprises.

Independent technical directors and their effect on corporate innovation in China

As outside advisors,independent directors serve as both consultants and monitors.Based on empirical studies of corporate innovation and independent directors,we used data from listed firms in China from 2007 to 2017 to examine the effect of hiring independent technical directors on the board of directors.This study focused on a firm’s innovation performance and the extent to which this performance is influenced by the relevance of a director’s expertise to the activities of the firm.The results show that when the technical expertise of an independent director is relevant to the operational field of the firm,the firm should perform better in terms of innovation.This result is still significant when applying the two-stage instrumental variable method,showing a higher significance when using the exogenous event of the 2014 Wenfeng.plc case.Moreover,independent technical directors influence innovation primarily by encouraging firms to deepen their current field of research rather than expanding to other fields.Our findings can guide corporations to hire more relevant independent technical directors and can help the government design more accurate policies that promote innovation and entrepreneurship.

Covering or monitoring?Independent director connectedness and corporate fraud in China

This paper examines how independent directors’social capital,as measured by their social network,affects corporate fraud.We find that firms with wellconnected independent directors are less likely to commit fraud,supporting our monitoring effect hypothesis.This result is robust to a battery of tests.Further analyses show that the effect is stronger for firms with a relatively poor legal environment,for firms whose independent directors face strong reputation incentives and when independent directors are audit committee members.Moreover,we explore a potential economic mechanism of the effect and observe that well-connected independent directors are associated with less absenteeism and more dissension.Overall,our findings suggest that independent directors’social capital plays an important role in corporate governance.

Implementing the Independent Director System in China: Issues and Considerations

Independent Directors (IDs), also known as outside directors or non-executive directors, are those who are independent of the company’s shareholders and who hold no post in a joint-stock company. Unlike internal directors who are under the control of dominant shareholders and a company’s leading group, IDs are in a position to play a favorable role for the company to independently judge and determine its business. The introduction of the ID system in the corporate

Defects in Chinas Independent Director System: A Case Study of Leshan Power Company

A system has been set up in China which provides for independent directors of listedcompanies. Whether these independent directors could play an effective role has, however,always been a matter for dispute. The recent case of Leshan Power shows that under thelegal framework and share structure which currently exists in China, there is very narrowscope for independent directors to carry out their function. After discussing the main obstaclesto implementation of independent directorship of Chinas listed companies, the authorpoints out several measures that must be taken in order to enhance the effectiveness ofboards of directors. Finally this paper concludes that without the necessary conditions forindependent directors to actually have a functioning role to play, invitation of independentdirectors by listed companies will be a matter of form only.

External regulation, independent director attendance,and governance effects

In this study we examine how the regulation of director attendance disciplines directors’behavior,and consider the governance effect of such regulations.This examination exploits the differences between the requirements for director attendance at board meetings enacted by the Shanghai Stock Exchange(SHSE)and by the Shenzhen Stock Exchange(SZSE).Using a difference-indifferences model with a sample of A-share listed firms from 2006 to 2017,we document that the rate of meeting attendance by independent directors who serve with firms listed on the SHSE(SHIDs)has increased significantly since the exchange’s enforcement of the regulation on attendance.This positive effect has been more pronounced for independent directors with legal backgrounds.Further investigations find that the regulation of attendance plays a corporate governance role through the mechanism of enhanced monitoring.The attendance regulation increases the SHIDs likelihood of casting dissenting votes,and it leads to both better accounting performance and higher firm value.In addition,SHIDs are more likely to depart from firms listed on the SHSE,and to transfer their directorships to firms listed on the SZSE,which has a less constraining attendance requirement.Our findings provide evidence of how external regulation shapes director attendance and voting behavior in emerging markets.