Voice or Exit? Independent Director Decisions in an Emerging Economy

53 Pages Posted: 26 Oct 2012

See all articles by Karen Lin

Karen Lin

University of Massachusetts Lowell - Department of Accounting

Joseph D. Piotroski

Stanford Graduate School of Business

Yong George Yang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration

Jingsong Tan

Sun Yat-sen University

Date Written: October 22, 2012

Abstract

We examine the certification and resignation decisions of independent directors in China, and provide evidence on the relative influence that social, political and reputational factors have on the decisions of independent directors in the presence of private information about future adverse outcomes. Using a hand collected sample of independent director opinions and resignations in China over the period 2005 to 2009, the paper documents that some independent directors in China are fulfilling their mandatory governance role by conveying negative information to minority shareholders in a timely manner. However, many more independent directors are avoiding their governance and monitoring responsibilities to escape the social costs of dissention and/or to minimize the reputation costs by either remaining silent or by voluntarily departing the firm in advance of adverse events. The results confirm anecdotal evidence that the decisions of independent directors in China do not uniformly reflect the intent of CSRC regulations; instead, their decisions reflect a tradeoff of social, political and reputational factors that shape the incentives of each independent director.

Keywords: Independent Directors, Corporate Governance, Regulation, Signaling, China

JEL Classification: G34, G38, M48

Suggested Citation

Lin, Karen and Piotroski, Joseph D. and Yang, Yong George and Tan, Jingsong, Voice or Exit? Independent Director Decisions in an Emerging Economy (October 22, 2012). Available at SSRN: https://ssrn.com/abstract=2166876 or http://dx.doi.org/10.2139/ssrn.2166876

Karen Lin

University of Massachusetts Lowell - Department of Accounting ( email )

Enter your address line 1 here
Enter your address line 2 here
Lowell, MA Enter your state here 01854
United States
Enter your phone number here (Phone)

Joseph D. Piotroski (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Yong George Yang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration ( email )

Shatin, N.T.
Hong Kong

Jingsong Tan

Sun Yat-sen University ( email )

135, Xingang Xi Road
Guangzhou, Guang Dong 510275
China

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
391
Abstract Views
2,325
rank
82,160
PlumX Metrics