Board Independence and Firm Performance in China
58 Pages Posted: 10 Dec 2014
Date Written: December 9, 2014
We provide the first comprehensive and robust evidence on the relationship between board independence and firm performance in China. We find that independent directors have an overall positive effect on firm operating performance in China. Our findings are robust to a battery of tests, including endogeneity checks using instrumental variables, the dynamic generalized method of moments estimator, and the difference-in-differences method. The positive relationship between board independence and firm performance is stronger in government controlled firms and in firms with lower information acquisition costs. We also document that Chinese independent directors play an important role in constraining insider self-dealing and improving investment efficiency.
Keywords: Independent directors, Firm performance, Monitoring costs, Tunneling, Investment efficiency, China
JEL Classification: G34, G38, K22
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