Independent directors, information costs and foreign ownership in Chinese companies

•Independent directors have a negative effect on firm performance in China.•The negative effect is more pronounced when there are high information costs.•The increased board diversification does not offset the effects on performance.•Foreign ownership increases willingness to appoint independent dir...

Full description

Saved in:
Bibliographic Details
Published in:Journal of international financial markets, institutions & money institutions & money, 2018-03, Vol.53, p.139-157
Main Authors: Meng, Yijun, Clements, Michael P., Padgett, Carol
Format: Article
Language:English
Subjects:
Corporate governance
Emerging market
Foreign ownership
Independent directors
Information costs
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:•Independent directors have a negative effect on firm performance in China.•The negative effect is more pronounced when there are high information costs.•The increased board diversification does not offset the effects on performance.•Foreign ownership increases willingness to appoint independent directors. This paper takes advantage of recent regulatory changes to estimate the effects of independent directors on company performance, taking into account information cost. Our data sample consists of 2371 firm–year observations for China over the period 1999–2005. Independent directors have a significantly negative impact on return on assets (ROA) and earnings per share (EPS), and this negative effect is more pronounced when the ability of the directors to perform their monitoring and advisory activities is curtailed by high information costs. We also find that foreign ownership may contribute to an increased willingness of firms to appoint independent directors.
ISSN:1042-4431
1873-0612
DOI:10.1016/j.intfin.2017.09.016