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Board of directors and corporate performance in China

Wei, Gang 2005. Board of directors and corporate performance in China. PhD Thesis, Cardiff University.

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Abstract

The purpose of this study is to examine the relationship between board of directors (BoD) and corporate performance in China. In particular, it attempts to identify the effects of four attributes of BoD board composition, characteristics of directors, board structure and board process on the financial performance of Chinese listed companies. A large number of empirical studies have examined the correlation between BoD and corporate performance. Few previous studies have examined the effects of BoD on both direct shareholder wealth and company financial performance. Moreover, little attention has been paid to this topic in a Chinese context. Owing to special ownership structure of listed companies, agency problems have recently received more and more attention in China from the academics and policy makers. As noted by Qian (1995) and Firth et al. (2003), agency problems in China are potentially more serious than in the West. Therefore, this study mainly employs agency theory to examine the effects of the BoD on corporate performance. It is utilised, together with other theories, such as resource dependence theory, to develop testable hypotheses and discuss the results. This study finds that there is relatively limited evidence that board independence has significantly positive impacts on corporate performance. In particular, it finds that there is non-linear relationship between board independence and firm performance. There is no negative relation between the proportion of affiliated directors on board and firm current or future performance. In addition, there is no significantly negative correlation between board size and firm current performance. In particular, there is no non-linear relationship between board size and corporate performance. There is no confirmative evidence that stock ownership and cash compensation of independent directors have any positive effects on corporate financial performance. However, there is strong evidence that firm performance depends crucially on the interaction between the magnitude of cash compensation of independent directors and the size of them on board. Also there is no evidence that the incentives of independent directors have any curvilinear effects on current performance. There is no evidence of significantly positive or negative correlation between age and primary occupation of independent directors and firm performance. However, I find that the presence of overseas independent directors has significantly positive impacts on corporate performance. Interestingly, there is a significantly negative correlation between the proportion of female independent directors and corporate performance. There is no clear evidence that CEO duality has any negative impact on current financial performance, which rejects the hypothesis H5. Furthermore, there is a significantly negative relationship between multi-directorship and firm performance. In addition, there is limited evidence that auditing committee has a significantly positive impact on corporate performance. There is no significantly positive correlation between the frequency of board meeting and firm financial performance. However, there is strong evidence that firm performance depends crucially on the interaction between the frequency of board meetings and the size of independent directors appointed. In particular, there is confirmative evidence that frequency of board meeting has curvilinear effect on firm performance. There is no clear evidence that the proportion of directors appointed by government agents control shareholders has a negative impact on corporate performance. However, there is a significantly negative correlation between the proportion of directors appointed by SOE control shareholders and company performance. Furthermore, the relationship between the proportion of directors appointed by SOE control shareholders and company performance is non-linear. The dissertation makes several important contributions to the corporate governance literature. In addition, this study also has implications for policy makers insofar as it offers empirical evidence concerning effectiveness of Chinese BoD in improving financial performance of listed companies. The findings of this study can help the authorities to reform the corporate governance system.

Item Type: Thesis (PhD)
Status: Unpublished
Schools: Business (Including Economics)
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
ISBN: 9781303170058
Date of First Compliant Deposit: 30 March 2016
Last Modified: 12 Feb 2016 23:14
URI: http://orca-mwe.cf.ac.uk/id/eprint/55581

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