The Value of Academics: Evidence From Academic Independent Director Resignations in China

53 Pages Posted: 30 May 2019 Last revised: 28 Jun 2019

See all articles by Jun Chen

Jun Chen

Auckland University of Technology - Department of Finance

Alexandre Garel

Audencia Business School; Labex ReFi

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law

Date Written: April 15, 2019

Abstract

In this paper, we use academic independent director resignations induced by the introduction of the Regulation 11 prohibiting academics from holding positions in Chinese public companies to examine their contribution to firm value. We document a negative market reaction to the issuance of the Regulation 11 and to the academic director resignations. The negative market reaction to academic director resignations is sizeable and hold when we further control for the influence of director, board, and firm characteristics. We next use heterogeneity in the market response to academic director resignations to study what the market values in academic directors. We find supportive evidence of monitoring, advising, and networking value contributions. Finally, we show that in the two years following the issuance of the Regulation 11, companies with at least one academic director on their board prior to Regulation 11 underperform relative to companies without any academic directors. Overall, our results are consistent with a positive contribution of academic independent directors to firm value.

Keywords: independent directors, academics, professors, board, value, firm performance, China

JEL Classification: G30, G34, G38

Suggested Citation

Chen, Jun and Garel, Alexandre and Tourani-Rad, Alireza, The Value of Academics: Evidence From Academic Independent Director Resignations in China (April 15, 2019). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3383387 or http://dx.doi.org/10.2139/ssrn.3383387

Jun Chen

Auckland University of Technology - Department of Finance ( email )

Auckland, 1142
New Zealand

Alexandre Garel (Contact Author)

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Labex ReFi ( email )

79 avenue de la République
Paris, 75011
France

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

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