Institutions, Board Structure, and Corporate Performance: Evidence from Chinese Firms
2015 · Published in Journal of Corporate Finance 32: 217–237 · DOI 10.1016/j.jcorpfin.2014.10.009
PDF of Institutions, Board Structure, and Corporate Performance: Evidence from Chinese Firms
In one sentence
In China, weaker property-rights protection is associated with more outsiders on corporate boards, and in that environment outsiders improve firm performance.
Summary
The paper studies how the institutional environment, such as property-rights protection, shapes the size and composition of corporate boards in China, and how board structure in turn affects performance. Using a World Bank survey of 2,400 public and private firms in 18 Chinese cities, it finds that a weaker “helping hand” from government is associated with more outside directors, both in number and as a share of the board. This holds after controlling for firm complexity, growth opportunities, CEO characteristics, ownership and potential endogeneity. When firms operate in a weak property-rights environment, more outsiders on the board improve corporate performance.
Abstract as published
This paper investigates how institutional environment like property rights protection influences the size and composition of corporate boards, and further, how board structure impacts firm performance in China. Using a World Bank survey of 2400 public and private firms across 18 Chinese cities, I find robust evidence that weaker helping hand from the government is associated with a higher number and proportion of outsiders on the board, after controlling for the effects of firm complexity, growth opportunities, CEO characteristics, ownership, and the potential endogeneity concern. Furthermore, the results show that when firms are operating in a weak property rights environment, more outsiders improve corporate performance.
Citation
Tao Chen (2015). Institutions, board structure, and corporate performance: Evidence from Chinese firms. Journal of Corporate Finance, 32, 217–237. https://doi.org/10.1016/j.jcorpfin.2014.10.009
BibTeX
@article{chen2015institutions,
title = {{Institutions, board structure, and corporate performance: Evidence from Chinese firms}},
author = {Tao Chen},
journal = {Journal of Corporate Finance},
year = {2015},
volume = {32},
pages = {217--237},
doi = {10.1016/j.jcorpfin.2014.10.009}
}