Director interlocks and spillover effects of board monitoring: evidence from regulatory sanctions

Exploiting regulatory sanctions as quasi‐exogenous shocks and unique data at the individual‐director level from China, we examine whether board monitoring can spread between firms via shared directors. Our results show that a director experiencing regulatory sanction at another firm is more likely to attend the board meetings, indicating his or her greater monitoring efforts. We also find that a firm is more likely to provide transparent financial statement when it shares a common director with an accused firm, and the effect is mainly concentrated among non‐state‐owned enterprises. These findings shed new light on the positive role of director interlocks in spreading monitoring efforts after regulatory sanction.