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From classroom to boardroom: The value of academic independent directors in China

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  • Pang, Jiaren
  • Zhang, Xinyi
  • Zhou, Xi

Abstract

Academic independent directors account for a significant fraction of boards of directors and play important roles. Using Chinese data, we find that stock prices drop by 1.39% following unexpected resignations of academic independent directors due to the ambiguity of a regulation, and by 1.74% following another regulation that explicitly prohibits professors with administrative positions from serving as independent directors. Cross-sectional tests show that the market reacts more negatively when the affected academic director holds more subcommittee chair positions or directorships, assumes a position on the board before the current CEO is in charge, comes from a top-tier university, has high-quality foreign academic experience, or works for firms that are in greater need of monitoring and advisory services. The results from the two samples are broadly consistent. We also offer some explanations for the prevalence of academic independent directors in China. Overall, our results indicate that academic independent directors in China create value for shareholders through both monitoring and advising.

Suggested Citation

  • Pang, Jiaren & Zhang, Xinyi & Zhou, Xi, 2020. "From classroom to boardroom: The value of academic independent directors in China," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:pacfin:v:62:y:2020:i:c:s0927538x19304068
    DOI: 10.1016/j.pacfin.2020.101319
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    References listed on IDEAS

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    1. Sihai Li & Yi Quan & Gary Gang Tian & Kun Tracy Wang & Stella Huiying Wu, 2022. "Academy fellow independent directors and innovation," Asia Pacific Journal of Management, Springer, vol. 39(1), pages 103-148, March.
    2. Zhao, Binjie & Tan, Jianhua & Chan, Kam C., 2022. "Does a CEO's prior academic experience helpful to an IPO firm? The case of IPO discount," Finance Research Letters, Elsevier, vol. 47(PB).
    3. Wang, Lu & Su, Zhong-qin & Fung, Hung-Gay & Jin, Hong-min & Xiao, Zuoping, 2021. "Do CEOs with academic experience add value to firms? Evidence on bank loans from Chinese firms," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    4. Hongyan Geng & Maoyong Cheng & Junrui Zhang, 2021. "Effects of wealth management products on bank risk in China: The role of audit committee effectiveness," Pacific Economic Review, Wiley Blackwell, vol. 26(5), pages 575-616, December.
    5. Huang, Wei & Teklay, Belaynesh, 2021. "Business Professors in the Boardroom: Can they walk-the-talk?," Finance Research Letters, Elsevier, vol. 39(C).
    6. Haroon ur Rashid Khan & Waqas Bin Khidmat & Muhammad Danish Habib & Sadia Awan, 2022. "Academic directors in board and corporate expropriation: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 372-397, March.
    7. Jin, Hong-min & Su, Zhong-qin & Wang, Lu & Xiao, Zuoping, 2022. "Do academic independent directors matter? Evidence from stock price crash risk," Journal of Business Research, Elsevier, vol. 144(C), pages 1129-1148.

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    More about this item

    Keywords

    Academic independent director; Board of directors; Government regulation; Document no. 18;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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