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Board of director compensation in China: It pays to be connected

Author

Listed:
  • Chen, Zonghao
  • Keefe, Michael O'Connor
  • Watts, Jameson K.M.

Abstract

We investigate the influence of board of director networks (network prominence) on the career outcomes of directors of Chinese public firms from 2005 to 2014. We find that higher network prominence leads to increased compensation for independent and executive directors. Network prominence increases turnover for independent directors, which facilitates access to better ex- ternal opportunities, whereas network prominence reduces turnover for directors with positions in controlling firms, which protects these related directors from dismissal. Network prominence also leads to additional future directorships, but for non-independent non-executive directors, this effect only holds for related directors who hold positions in controlling firms. These findings are consistent with related directors acting in the interest of the controlling firm. Overall, higher network prominence both directly leads to higher compensation and indirectly leads to higher compensation through the channels of labor mobility and additional board seats.

Suggested Citation

  • Chen, Zonghao & Keefe, Michael O'Connor & Watts, Jameson K.M., 2020. "Board of director compensation in China: It pays to be connected," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:pacfin:v:63:y:2020:i:c:s0927538x20301025
    DOI: 10.1016/j.pacfin.2020.101394
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    More about this item

    Keywords

    Board networks; Director compensation; Director turnover;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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