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Connected board of directors: A blessing or a curse?

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  • Cheung, Yan-Leung
  • Chung, Cheong-Wing
  • Tan, Weiqiang
  • Wang, Wenming

Abstract

This study attempts to identify the connection between the board of directors (BoD) and the controlling shareholder. We investigate how this connection affects the corporate governance practice and market performance of Hong Kong listed firms. Our results reveal that close connections between the BoD and the controlling shareholder have a negative effect on corporate governance practice. Our findings also indicate a lower market valuation for firms with a connected BoD. The evidence suggests that the market discounts the value of firms with a connected BoD. The evidence seems to reinforce the importance of the role of independent non-executive directors (INEDs) to enhance the independence of BoD.

Suggested Citation

  • Cheung, Yan-Leung & Chung, Cheong-Wing & Tan, Weiqiang & Wang, Wenming, 2013. "Connected board of directors: A blessing or a curse?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3227-3242.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:8:p:3227-3242
    DOI: 10.1016/j.jbankfin.2013.03.001
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    3. Erin H. Kao & Ho-Chuan Huang & Hung-Gay Fung & Xiaojian Liu, 2020. "Co-opted directors, gender diversity, and crash risk: evidence from China," Review of Quantitative Finance and Accounting, Springer, vol. 55(2), pages 461-500, August.
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    5. Lin, Yi-Mien & Shen, Cheng-An, 2015. "Family firms' credit rating, idiosyncratic risk, and earnings management," Journal of Business Research, Elsevier, vol. 68(4), pages 872-877.
    6. Liang, Deron & Tsai, Chih-Fong & Lu, Hung-Yuan (Richard) & Chang, Li-Shin, 2020. "Combining corporate governance indicators with stacking ensembles for financial distress prediction," Journal of Business Research, Elsevier, vol. 120(C), pages 137-146.
    7. Xin Chen & Chang Yang, 2021. "Vertical interlock and the value of cash holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 561-593, March.
    8. Yang, Chang & Chen, Xin & Chen, Xian, 2021. "Vertical interlock and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Family ownership; Board structure; Corporate governance; Hong Kong; OECD principles;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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