Chasing political resources by listed companies: a perspective on hiring non-local independent directors from Beijing

Using a sample of Chinese A-share listed companies from 2002 to 2013, we investigate the motivation and consequences of listed companies hiring non-local independent directors from Beijing. The results indicate that: (1) listed companies that are headquartered far away from Beijing, or located in poor institutional environments, are more inclined to hire non-local independent directors from Beijing for the sake of political resources; (2) listed companies not headquartered in Beijing hire a significantly higher ratio of independent directors with full-time jobs in Beijing that are retired government officials than do listed companies located in Beijing; (3) appointing independent directors from Beijing helps enterprises to refinance equity, enter high-barrier industries, and reduce the risk of illegal penalties. Our analysis also reveals that non-local independent directors from Beijing receive higher remuneration. This study clarifies the internal decision mechanisms surrounding independent director appointments and the role they play. Our results reflect the failure of the independent director system as an enforceable institution under a transitional economy and provide important implications to improve our corporate governance mechanisms.