Abstract
This study examines the stock price response to Document 18, a regulation released in China in 2013 requiring independent directors with political connections to resign from the boards of directors for publicly listed firms. We document a significant positive price response in the window surrounding the directive's promulgation date. This response is also of important economic magnitude. Our findings suggest that on average, the market views the costs of hiring politically connected directors as outweighing the associated benefits. Consistent with this view, we document that politically connected directors often shirk their board duties, as evidenced by their poor rates of attendance at board meetings. Further investigations show that the value decreasing effect of politically connected directors is apparent mainly for firms in regulated industries and varies with earnings management practices. However, the market views politically connected directors favorably if firms have significant business transactions with the government.
| Original language | English |
|---|---|
| Article number | 100161 |
| Number of pages | 15 |
| Journal | Journal of Contemporary Accounting and Economics |
| Volume | 15 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - Dec 2019 |
Keywords
- China
- Event study
- Exogenous shock
- Independent director
- Political connection
Cite this
}
What's the value of politically connected directors? / Zhang, Karen; Truong, Cameron.
In: Journal of Contemporary Accounting and Economics, Vol. 15, No. 3, 100161, 12.2019.Research output: Contribution to journal › Article › Research › peer-review
TY - JOUR
T1 - What's the value of politically connected directors?
AU - Zhang, Karen
AU - Truong, Cameron
PY - 2019/12
Y1 - 2019/12
N2 - This study examines the stock price response to Document 18, a regulation released in China in 2013 requiring independent directors with political connections to resign from the boards of directors for publicly listed firms. We document a significant positive price response in the window surrounding the directive's promulgation date. This response is also of important economic magnitude. Our findings suggest that on average, the market views the costs of hiring politically connected directors as outweighing the associated benefits. Consistent with this view, we document that politically connected directors often shirk their board duties, as evidenced by their poor rates of attendance at board meetings. Further investigations show that the value decreasing effect of politically connected directors is apparent mainly for firms in regulated industries and varies with earnings management practices. However, the market views politically connected directors favorably if firms have significant business transactions with the government.
AB - This study examines the stock price response to Document 18, a regulation released in China in 2013 requiring independent directors with political connections to resign from the boards of directors for publicly listed firms. We document a significant positive price response in the window surrounding the directive's promulgation date. This response is also of important economic magnitude. Our findings suggest that on average, the market views the costs of hiring politically connected directors as outweighing the associated benefits. Consistent with this view, we document that politically connected directors often shirk their board duties, as evidenced by their poor rates of attendance at board meetings. Further investigations show that the value decreasing effect of politically connected directors is apparent mainly for firms in regulated industries and varies with earnings management practices. However, the market views politically connected directors favorably if firms have significant business transactions with the government.
KW - China
KW - Event study
KW - Exogenous shock
KW - Independent director
KW - Political connection
UR - http://www.scopus.com/inward/record.url?scp=85070491895&partnerID=8YFLogxK
U2 - 10.1016/j.jcae.2019.100161
DO - 10.1016/j.jcae.2019.100161
M3 - Article
VL - 15
JO - Journal of Contemporary Accounting and Economics
JF - Journal of Contemporary Accounting and Economics
SN - 1815-5669
IS - 3
M1 - 100161
ER -