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Board independence and firm performance in China

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  • Liu, Yu
  • Miletkov, Mihail K.
  • Wei, Zuobao
  • Yang, Tina

Abstract

We provide the first comprehensive and robust evidence on the relationship between board independence and firm performance in China. We find that independent directors have an overall positive effect on firm operating performance in China. Our findings are robust to a battery of tests, including endogeneity checks using instrumental variables, the dynamic generalized method of moments estimator, and the difference-in-differences method. The positive relationship between board independence and firm performance is stronger in government-controlled firms and in firms with lower information acquisition costs. We also document that Chinese independent directors play an important role in constraining insider self-dealing and improving investment efficiency.

Suggested Citation

  • Liu, Yu & Miletkov, Mihail K. & Wei, Zuobao & Yang, Tina, 2015. "Board independence and firm performance in China," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 223-244.
    • Handle: RePEc:eee:corfin:v:30:y:2015:i:c:p:223-244
    DOI: 10.1016/j.jcorpfin.2014.12.004
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    More about this item

    Keywords

    Independent directors; Firm performance; Monitoring costs; Tunneling; Investment efficiency; China;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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