The determinants of adjustment speed of board structure: evidence from Chinese listed companies

• Published in: Review of managerial science 2021-04, Vol.15 (3), p.725-753
• Main Authors: Li, Yunhe, Lan, Faqin
• Format: Article
• Language: English
• Subjects: Accounting/Auditing; Banking; Business and Management; Business Strategy/Leadership; Dependency theory; Marketing; Original Paper
• ISSN: 1863-6683; 1863-6691
• DOI: 10.1007/s11846-019-00357-0

Using data from China’s publicly listed companies, this study investigates how firms adjust their board structure in China. We observe that between 2007 and 2013, 45% of firms changed the size or the independence of their boards during a given 2-year interval. We also find that the companies frequently adjust their board structure toward a target board structure. Based on agency theory and resource dependency theory, we have developed a novel trade-off framework between and within a board’s monitoring and advisory functions to examine the dynamic adjustment of board structure in China. The board adjustment is asymmetrically determined by both monitoring-driven adjustment and by advisory-driven adjustment. For state-owned enterprises (SOEs), a change of board independence is directed more by monitoring-driven than by advisory-driven adjustment, whereas for privately owned enterprises (POEs) such change is propelled less by monitoring-driven than by advisory-driven adjustment. For SOEs, a change in board size is influenced more by advisory-driven than by monitoring-driven adjustment, while for POEs it is affected less by advisory-driven than by monitoring-driven adjustment. The findings offer insight into the dynamic adjustment of board structure in China’s emerging economy, where companies achieve economic efficiency in response to their environment.