The Advisory Role of the Board: Evidence from the Implementation of Independent Director System in China

35 Pages Posted: 17 Mar 2009

See all articles by Jing Liao

Jing Liao

Massey University

Martin R. Young

Massey University - School of Economics and Finance

Qian Sun

affiliation not provided to SSRN

Abstract

This paper explores the empirical results of the implementation of an independent director system in China. The results show that firms implement board independence by adding extra members, instead of removing inside directors, except in the case where the board size (before the recruitment of independent directors) has already been too large. It has been identified that large firms prefer a large board with more independent directors on the board. However, the largest shareholders have a strong incentive to organise a small and insider-controlled board. Although there is a negative relationship between board size, board independence and firm performance, Tobin's Q increases in relation to board size and board independence for large firms.

Keywords: Corporate governance; Board structure; Firm performance; China

JEL Classification: G34, G38

Suggested Citation

Liao, Jing and Young, Martin R. and Sun, Qian, The Advisory Role of the Board: Evidence from the Implementation of Independent Director System in China. Massey U. College of Business Research Paper No. 1. Available at SSRN: https://ssrn.com/abstract=1361202 or http://dx.doi.org/10.2139/ssrn.1361202

Jing Liao (Contact Author)

Massey University ( email )

Private Bag 11 222
Palmerston North, Manawatu 4442
New Zealand

Martin R. Young

Massey University - School of Economics and Finance ( email )

Private Bag 11222
Palmerston North, 4442
New Zealand

Qian Sun

affiliation not provided to SSRN ( email )

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