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Board Structure and Intragroup Propping: Evidence from Family Business Groups in Hong Kong

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  • Yan-Leung Cheung
  • In-Mu Haw
  • Weiqiang Tan
  • Wenming Wang

Abstract

type="main"> Using earnings announcement events made by group member firms in Hong Kong, this study examines the governance role of boards of directors in curbing propping activities within family business groups. We find that earnings released by group member firms affect the stock prices of their nonannouncing group peers in a manner consistent with intragroup propping. More importantly, this effect is less pronounced when the announcing firms have a larger board or a board with a higher proportion of independent directors, but more pronounced when they have an executive director from their controlling families acting as board chairperson. Furthermore, the monitoring effect of boards of directors is strengthened for firms subject to new regulations increasing board power. Our results suggest that board oversight can mitigate propping activities.

Suggested Citation

  • Yan-Leung Cheung & In-Mu Haw & Weiqiang Tan & Wenming Wang, 2014. "Board Structure and Intragroup Propping: Evidence from Family Business Groups in Hong Kong," Financial Management, Financial Management Association International, vol. 43(3), pages 569-601, September.
  • Handle: RePEc:bla:finmgt:v:43:y:2014:i:3:p:569-601
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    File URL: http://hdl.handle.net/10.1111/fima.12034
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