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

• Published in: Pacific-Basin finance journal 2020-10, Vol.63, p.101394, Article 101394
• Main Authors: Chen, Zonghao, Keefe, Michael O'Connor, Watts, Jameson K.M.
• Format: Article
• Language: English
• Subjects: Board networks; Director compensation; Director turnover
• ISSN: 0927-538X; 1879-0585
• DOI: 10.1016/j.pacfin.2020.101394

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. •Influence of network prominence in China.•Prominence increases director compensation.•Prominence increases director turnover for independent directors.•Prominence decreases director turnover for related directors.•Prominence leads to more board seats.