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The Impact of the Supervisory Board Supervision on Firm Performance: Evidence from Chinese Listed Firms

Author

Listed:
  • Xiaobao Song

    (Shantou University, China)

  • Wun-Hong Su

    (Hangzhou Dianzi University, China)

  • Yuqing Liu

    (Shantou University, China)

Abstract

The various types of fraud events occurring in listed firms have led to the continuous questioning of the governance role of the board of supervisors. An ultimate controller who adopts the owner-management mode for a private firm is likely to motivate the board of supervisors to simply act as a "rubber stamp". Based on the background of the current capital market, this study investigates the impact of the owners of private firms on the independence of the board of supervisors. Using data of Chinese listed firms, the empirical results illustrate that there is a significant negative relation between the number of meetings of the board of supervisors and firm performance, indicating that the supervisors of listed firms in China are not only ineffective but also lack independence. Further, when the ultimate controllers¡¯ equity concentration is relatively centralised or the ultimate controller adopts the owner-management mode, the negative relation between the number of meetings of the board of supervisors and firm performance becomes more significant. The results demonstrate that the board of supervisors not only pretends to assume the role of supervision but also may collude with the ultimate controller. Compared with a context with more decentralised equity, when the ultimate controller holds more concentrated equity, it seriously damages supervisory board independence and weakens supervision. This weakening is eventually reflected in differences in firm performance. Because the ultimate controller either acts as chairman or another important management position in the listed firm to assume owner management or holds a more concentrated equity, (s)he strengthens control over the whole firm. In this situation, the ultimate controller tends to manipulate the supervisory board to pursue personal interest.

Suggested Citation

  • Xiaobao Song & Wun-Hong Su & Yuqing Liu, 2019. "The Impact of the Supervisory Board Supervision on Firm Performance: Evidence from Chinese Listed Firms," Review of Economics & Finance, Better Advances Press, Canada, vol. 16, pages 47-58, May.
    • Handle: RePEc:bap:journl:190204
    Note: The authors acknowledge the funding from the National Social Science Fund of China (Award Number: 16BGL078).
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    References listed on IDEAS

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    1. Xiaobao Song, 2015. "Monitoring or tunneling by large shareholders: evidence from China private listed companies," China Finance Review International, Emerald Group Publishing Limited, vol. 5(2), pages 187-211, May.
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    Cited by:

    1. Yang, Lisi & Liu, Linqing & Yan, Kai & Cai, Chunhua & Geng, Yannan, 2023. "“Carrot and stick”: Green fiscal policy, upper echelons expertise, and the green mergers and acquisitions," Finance Research Letters, Elsevier, vol. 58(PD).
    2. Baorong Guo & Xinan Zhao & Lizhi Hu, 2023. "A Grounded Theory Examination of Supervisory Boards’ Governance Capability Indicators in Publicly Traded Firms: A Sustainability Perspective," Sustainability, MDPI, vol. 15(13), pages 1-17, July.

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    More about this item

    Keywords

    Owner management; Ownership concentration; Supervisory board; Independence;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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