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Connected board of directors: A blessing or a curse?

Author

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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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    6. James, Hui Liang & Wang, Hongxia & Xie, Yamin, 2018. "Busy directors and firm performance: Does firm location matter?," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 1-37.
    7. 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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    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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