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The economic independence of supervisory boards and corporate innovation: Evidence from China

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  • Bai, Min
  • Pan, Maomao

Abstract

The capability of the supervisory board to fulfill its governance function has been controversial, and one of the key issues is which type of supervisory board is more effective. Using data of Chinese A-share listed firms, this paper reveals a positive relationship between the economic independence of the supervisory board (EISB) and firm innovation, which is robust after addressing potential endogeneity issues. Moreover, this positive association is more pronounced for state-owned enterprises, firms with weaker external corporate governance, longer-tenured CEOs, and a stable internal environment. Additional analysis reveals that the EISB also enhances corporate innovation quality. Finally, the channel analysis shows that the EISB promotes innovation by alleviating corporate tunneling, and we find no evidence of improved independent directors’ performance. Overall, this paper enriches and expands the literature on the effectiveness of the supervisory board in emerging economy and provides new insights for improving corporate innovation.

Suggested Citation

  • Bai, Min & Pan, Maomao, 2023. "The economic independence of supervisory boards and corporate innovation: Evidence from China," Economic Modelling, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:ecmode:v:127:y:2023:i:c:s0264999323002936
    DOI: 10.1016/j.econmod.2023.106481
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    More about this item

    Keywords

    Supervisory board; Economic independence; Corporate innovation; Corporate governance;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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