Value of Politically Connected Independent Directors: Evidence from the Anti-Corruption Campaign in China

58 Pages Posted: 3 Sep 2019 Last revised: 9 Oct 2019

See all articles by Chang Zhang

Chang Zhang

University of Warwick - Warwick Business School

Date Written: August 15, 2019

Abstract

A new regulation issued in the end of 2013 as part of the anti-corruption campaign in China leads to a wave of resignation of politically connected independent directors (PCID). I find while firms with PCIDs have negative cumulative abnormal return (CAR) around release of the new regulation, they have even larger positive CAR around announcement of PCID resignations, especially for non-SOEs. This is because firms with PCIDs have higher political risk after release of the regulation, but their political risk decreases after PCIDs resign and they are complied with the regulation. I also show operating performance does not change after PCID resignations, casting doubt on the "helping hand" theory of political connections.

Keywords: Political connections; Independent directors; Political risk; Firm value

JEL Classification: G14, G3

Suggested Citation

Zhang, Chang, Value of Politically Connected Independent Directors: Evidence from the Anti-Corruption Campaign in China (August 15, 2019). European Corporate Governance Institute - Finance Working Paper No. 627/2019. Available at SSRN: https://ssrn.com/abstract=3446410 or http://dx.doi.org/10.2139/ssrn.3446410

Chang Zhang (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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