Academic Directors and Corporate Violations: Evidence from China

Abstract

In this paper, we examine whether presence of academic directors on the board, affects the frequency of corporate violations. Using a large sample of Chinese listed companies over 2008 to 2022, we find that a larger proportion of academic directors on the board decreases the number of corporate violations as well as the likelihood of serious punishments. These results are both statistically significant and economically meaningful. The results remain unchanged after several robustness tests and controlling for potential endogeneity. We also find a significant reduction in the number of academic directors in firms implicated for corporate violations which confirms that academics place greater value on their moral reputation. We further explore the monitoring role of academic directors. The results indicate that the impact of academic directors in curbing violations is significant when firms have weak internal and/or external oversight. Cross-sectional analysis shows that this negative relationship is more pronounced when firms carry higher bankruptcy risk and greater firm visibility. Overall, our findings suggest that the presence of academic directors plays an important role in improving monitoring and reducing corporate violations.

Keywords: Academic directors, Corporate violations, Director functions, Corporate governance