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The value of independent directors: Evidence from China

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  • Wu, Yihan
  • Dong, Bin

Abstract

This paper comprehensively investigates the contribution of independent directors to Chinese listed enterprises through a unique natural experiment. Our results show that in China, independent directors who are incumbent or retired government officials can promote the performance of privately controlled listed enterprises, while other independent directors make little contribution to Chinese listed enterprises. In fact, Chinese independent directors cannot play monitoring and advising roles effectively and even exacerbate the agency problem in listed enterprises. Among them, government official independent directors, however, enable privately controlled listed enterprises to access public resources to enhance firm performance. It can be concluded that Chinese independent directors act as “vases for decoration” on boards. Even worse, government official independent directors play important roles in firms' rent-seeking activities. Our findings provide sufficient new evidence for the classic theory of independent directors and may shed light on corporate governance in other emerging economies.

Suggested Citation

  • Wu, Yihan & Dong, Bin, 2021. "The value of independent directors: Evidence from China," Emerging Markets Review, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:ememar:v:49:y:2021:i:c:s1566014119304984
    DOI: 10.1016/j.ememar.2020.100763
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    Cited by:

    1. Zhang, Tianyu, 2022. "Independent directors and patenting strategies: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 81(C).
    2. Liu, Xiaomei & Li, Bin & Zhang, Shuai & Yang, Zhenhe, 2024. "Does the resignation of an independent director affect audit fees? An empirical study based on Chinese A-share listed companies," International Review of Financial Analysis, Elsevier, vol. 92(C).
    3. Elnahass, Marwa & Alharbi, Rana & Mohamed, Toka S. & McLaren, Josie, 2023. "The Nexus among board diversity and bank stability: Implications from gender, nationality and education," Emerging Markets Review, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Independent directors; Resignation; Market reaction; Firm value;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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