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Causes and consequences of flocked resignations of independent directors: Inferences from firm impacts following Kangmei Pharmaceutical's scandal

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  • Goodell, John W.
  • Li, Mingsheng
  • Liu, Desheng

Abstract

The monitoring role of independent directors could be compromised by weak legal environments and a lack of law enforcement, especially in emerging markets. We explore this issue by investigating the possible causes and consequences of large-scale resignations of independent directors across Chinese firms following Kangmei Pharmaceutical's financial scandal. We show that those resignations signaled potential problems for respective firms because those companies were more likely to be exposed to financial misconduct and experience poor stock performance. Our evidence suggests that holding independent directors accountable for negligence of duty is an essential component of corporate governance.

Suggested Citation

  • Goodell, John W. & Li, Mingsheng & Liu, Desheng, 2023. "Causes and consequences of flocked resignations of independent directors: Inferences from firm impacts following Kangmei Pharmaceutical's scandal," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006729
    DOI: 10.1016/j.frl.2022.103496
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    Cited by:

    1. 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).
    2. Ali, Shoaib & Naveed, Muhammad & Gubareva, Mariya & Vinh Vo, Xuan, 2024. "Reputational contagion from the Silicon Valley Bank debacle," Research in International Business and Finance, Elsevier, vol. 69(C).
    3. Naveed, Muhammad & Ali, Shoaib & Gubareva, Mariya & Omri, Anis, 2024. "When giants fall: Tracing the ripple effects of Silicon Valley Bank (SVB) collapse on global financial markets," Research in International Business and Finance, Elsevier, vol. 67(PA).
    4. Azmi, Wajahat & Anwer, Zaheer & Azmi, Shujaat Naeem & Nobanee, Haitham, 2023. "How did major global asset classes respond to Silicon Valley Bank failure?," Finance Research Letters, Elsevier, vol. 56(C).
    5. Gurdgiev, Constantin & Ni, Qiuxin, 2023. "Board diversity: Moderating effects of CEO overconfidence on firm financing decisions," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    6. Yousaf, Imran & Riaz, Yasir & Goodell, John W, 2023. "What do responses of financial markets to the collapse of FTX say about investor interest in cryptocurrencies? Event-study evidence," Finance Research Letters, Elsevier, vol. 53(C).

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    More about this item

    Keywords

    Board of directors; Independent directors; Corporate governance; Financial scandal; Chinese markets; Shareholder protection; Flocked resignations;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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