Top

Review of Quantitative Finance and Accounting

Published in:

05-01-2019 | Original Research

Frequencies of board meetings on various topics and corporate governance: evidence from China

Authors: Jiao Ji, Oleksandr Talavera, Shuxing Yin

Published in: Review of Quantitative Finance and Accounting | Issue 1/2020

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

This paper examines the relationship between number of topic-specific board meetings and quality of corporate governance. The quality of corporate governance is estimated by CEO turnover-performance and compensation-performance sensitivities. Information about topic-specific meetings is collected from the reports of independent directors of Chinese listed firms. We find that more frequent discussions of growth strategies related to the use of IPO proceeds, investment and acquisitions increase CEO compensation-performance sensitivity. By contrast, more discussions about the nomination of directors and top management are likely to reduce the sensitivities of both CEO turnover and compensation to performance. Our findings shed light on what makes boards efficient, and how board monitoring of assorted decisions modifies the relationship between CEO interests and firm performance.

previous article The usefulness of the double entry constraint for predicting earnings

next article The effects of executive compensation and outside monitoring on firms’ pre-repurchase disclosure behavior and post-repurchase performance

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Available only for authorised users

The Code of Corporate Governance for Listed Companies in China in 2001 and 2002.

We also used eleven topics in robustness tests (available upon request). Our main results were unchanged.

Industry dummies are included because listed firms may change main business sectors during the sample period. The untabulated coefficients of the industry dummies prove the existence of within-group variance for most industries.

We also estimate Eq. (1) using random effects, and the main results are consistent with those obtained using fixed effects. The results of a Hausman test indicate that the firm-fixed-effects models in our study are more suitable.

We use stock returns and Tobin’s Q as performance measures, and find that market performance plays a limited role in explaining the probability of CEO dismissal or the size of compensation, which is consistent with the finding of Conyon and He (2014).

To obtain robust results, we also regress CEO dismissal on ROA, topic-specific meetings and their interactions from t − 3 to t − 1, and we find that the interactions from t − 3 to t − 1 are not significant for six types of meetings (Panel C). The joint significance test shows that CEO dismissal is negatively related to the long-term effect of ROA, but the long-term effects of interactions between meeting and ROA are not significant. The results are similar with those using accumulated industry adjusted ROA. These results should be treated carefully since the insignificant relationship could be caused by the smaller sample size.

To obtain Excess Compensation, we estimate the following cross-sectional regressions for each industry classification within the fiscal year from 2005 to 2015: \(Compensation_{jt} = \, Log\left( {firm\;size} \right)_{jt} + ROA_{jt} + Board\;size_{jt} + Independent\;director\;\%_{jt} + Ownership\;Concentration_{jt} + e_{jt} .\) The firm-specific annual excess compensation for firm j (in a given industry) in year t, ε_jt, is the residual of the regression of the above equation for that particular industry.

Adams RB (2005) What do boards do? Evidence from board committee and director compensation data (March 13, 2003). In: EFA 2005 Moscow meetings paper. Available at SSRN: https://ssrn.com/abstract=397401 or https://doi.org/10.2139/ssrn.397401

Adams RB, Ferreira D (2007) A theory of friendly boards. J Financ 62(1):217–250

Adams RB, Ferreira D (2009) Women in the boardroom and their impact on governance and performance. J Financ Econ 94(2):291–309

Adams RB, Hermalin BE, Weisbach MS (2010) The role of boards of directors in corporate governance: a conceptual framework and survey. J Econ Lit 48(1):58–107

Allen F, Qian J, Qian M (2005) Law, finance, and economic growth in China. J Financ Econ 77(1):57–116

Bai CE, Xu LC (2005) Incentives for CEOs with multitasks: evidence from Chinese state-owned enterprises. J Comp Econ 33(3 SPEC. ISS):517–539

Bai C-E, Liu Q, Lu J, Song FM, Zhang J (2004) Corporate governance and market valuation in China. J Comp Econ 32(4):599–616

Baysinger BD, Butler HN (1985) Corporate governance and the board of directors: performance effects of changes in board composition. J Law Econ Organ 1(1):101–124

Bizjak J, Lemmon M, Nguyen T (2011) Are all CEOs above average? An empirical analysis of compensation peer groups and pay design. J Financ Econ 100:538–555

Boyd BK (1994) Board control and ceo compensation. Strateg Manag J 15(5):335–344

Brick IE, Chidambaran NK (2010) Board meetings, committee structure, and firm value. J Corp Financ 16(4):533–553

Brick IE, Palmon O, Wald JK (2006) CEO compensation, director compensation, and firm performance: evidence of cronyism? J Corp Financ 12(3):403–423

Cao J, Pan X, Tian G (2011) Disproportional ownership structure and pay-performance relationship: evidence from China’s listed firms. J Corp Financ 17(3):541–554

Carter DA, D’Souza F, Simkins BJ, Simpson WG (2010) The gender and ethnic diversity of US boards and board committees and firm financial performance. Corp Gov 18(5):396–414

Chang EC, Wong SML (2009) Governance with multiple objectives: evidence from top executive turnover in China. J Corp Financ 15(2):230–244

Chen G, Firth M, Gao DN, Rui OM (2006) Ownership structure, corporate governance, and fraud: evidence from China. J Corp Financ 12(3):424–448

Chen G, Firth M, Xu L (2009) Does the type of ownership control matter? Evidence from China’s listed companies. J Bank Financ 33(1):171–181

Cheng S (1999) An analysis of China’s stock market in the first 10 years. Rev Pac Basin Financ Mark Polic 12(4):629–653

Coles JL, Daniel ND, Naveen L (2008) Boards: does one size fit all? J Financ Econ 87(2):329–356

Coles JL, Wang YA, Li ZF (2018) Industry Tournament Incentives. Rev Financ Stud 31(4):1418–1459

Conyon M, He L (2011) Executive compensation and corporate governance in China. J Corp Financ 17(4):1158–1175

Conyon M, He L (2012a) CEO compensation and corporate governance in China. Corp Gov Int Rev 20(6):575–592

Conyon MMJ, He L (2012b) CEO compensation and corporate governance in China. Corp Gov Int Rev 20(6):575–592

Conyon M, He L (2014) CEO turnover in China: the role of market-based and accounting performance measures. Eur J Financ 20(7–9):657–680

Dah M, Frye M, Hurst M (2014) Board changes and CEO turnover: the unanticipated effects of the Sarbanes-Oxley Act. J Bank Financ 41:97–108

Demb A, Neubauer FF (1992) The corporate board: confronting the paradoxes. Oxford, New York; Oxford University Press, Toronto, Melbourne

Ding S, Wu Z, Li Y, Jia C (2010) Executive compensation, supervisory board, and China’s governance reform: a legal approach perspective. Rev Quant Financ Acc 35(4):445–471

Dominguez-Martinez S, Swank OH, Visser B (2008) In defense of boards. J Econ Manag Strategy 17(3):667–682

Eisenberg T, Sundgren S, Wells MT (1998) Larger board size and decreasing firm value in small firms. J Financ Econ 48(1):35–54

Fama EF (1980) Agency problems and the theory of the firm. J Polit Econ 88(2):288–307

Fama EF, Jensen MC (1983) Separation of ownership and control. J Law Econ 26(2):301–325

Firth M, Fung PMY, Rui OM (2006a) Corporate performance and CEO compensation in China. J Corp Financ 12(4):693–714

Firth M, Fung PMY, Rui OM (2006b) Firm performance, governance structure, and top management turnover in a transitional economy. J Manage Stud 43(6):1289–1330

Forbes DP, Milliken FJ (1999) Cognition and corporate governance: understanding boards of directors as strategic decision-making groups. Acad Manag Rev 24(3):489–505

Francis B, Hasan I, Wu Q (2015) Professors in the boardroom and their impact on corporate governance and firm performance. Financ Manage 44(3):547–581

Fung JKH, Pecha D (2018) The efficiency of compensation contracting in China: do better CEOs get better paid? Rev Quant Financ Account. https://doi.org/10.1007/s11156-018-0765-y CrossRef

Gibson MS (2003) Is corporate governance ineffective in emerging markets? J Financ Quant Anal 38(1):231

Goyal VK, Park CW (2002) Board leadership structure and CEO turnover. J Corp Financ 8(1):49–66

Hermalin BE (2005) Trends in corporate governance. J Financ 60(5):1–34

Hermalin BE, Weisbach MS (1998) Boards of directors as an endogenously determined institution: a survey of the economic literature. Am Econ Rev 88(1):96–118

Hermalin BE, Weisbach MS (2003) Boards of directors as an endogenously determined institution: a survey of the economic literature. Econ Policy Rev 9(1):7

Jensen MC (1993) The modern industrial revolution, exit, and the failure of internal control systems. J Financ 48(3):831–880

Jensen MC, Meckling WH (1976) Theory of the firm: managerial behavior, agency costs and ownership structure. J Financ Econ 3(4):305–360

Jiang W, Wan H, Zhao S (2016) Reputation concerns of independent directors: evidence from individual director voting. Rev Financ Stud 29(3):655–696

Jiang W, Liao X, Lin B, Liu Y (2018) The effect of compensation disclosure on compensation benchmarking: evidence from China. J Account Audit Financ 33(2):252–276

Kaplan SN, Minton BA (2012) How has CEO turnover changed? Int Rev Financ 12(1):57–87

Kato T, Long C (2006a) CEO turnover, firm performance, and enterprise reform in China: evidence from micro data. J Comp Econ 34(4):796–817

Kato T, Long C (2006b) Executive turnover and firm performance in China. Am Econ Rev 96(2):363–367

Kim Y (1996) Long-term firm performance and chief executive turnover: an empirical study of the dynamics. J Law Econ Organ 12:480–796

La Porta R, Lopez-de-SIlanes F, Shleifer A, Vishny RW (1998) Law and finance Rafael La Porta, Florencio Lopez-de-Silanes. J Polit Econ 106(6):11131–11155

Lin KJ, Karim K, Carter C (2014) Stock price informativeness and idiosyncratic return volatility in emerging markets: evidence from China. Rev Pac Basin Financ Mark Polic 17(4):1450025

Lipton M, Lorsch JW (1992) A modest proposal for improved corporate governance. Bus Lawyer 48:59–77

Liu Y, Miletkov M, Wei Z, Yang T (2015) Board independence and firm performance in China. J Corp Financ 30:223–244

Lo AWY, Wong RMK, Firth M (2010) Can corporate governance deter management from manipulating earnings? Evidence from related-party sales transactions in China. J Corp Financ 16(2):225–235

Ma J, Khanna T (2016) Independent directors’ dissent on boards: evidence from listed companies in China. Strateg Manag J 37(8):1547–1557

Minichilli A, Zattoni A, Zona F (2009) Making boards effective: an empirical examination of board task performance. Br J Manag 20(1):55–74

Peng WQ, Wei KCJ, Yang Z (2011) Tunneling or propping: evidence from connected transactions in China. J Corp Financ 17(2):306–325

Raheja CG (2005) Determinants of board size and composition: a theory of corporate boards. J Financ Quant Anal 40(02):283

Ryan HE, Wiggins RA (2004) Who is in whose pocket? Director compensation, board independence, and barriers to effective monitoring. J Financ Econ 73(3):497–524

Schwartz-Ziv M, Weisbach MS (2013) What do boards really do? Evidence from minutes of board meetings. J Financ Econ 108(2):349–366

Shivdasani A (1993) Board composition, ownership structure, and hostile takeovers. J Account Econ 16(1–3):167–198

Shivdasani A, Yermack D (1999) CEO involvement in the selection of new board members: an empirical analysis. J Financ 54(5):1829–1853

Sonnenfeld JA (2002) What makes great boards great. Harvard Bus Rev 80(9):106

Stiles P (2001) The impact of the board on strategy: an empirical examination. J Manage Stud 38(5):627–650

Tang X, Du J, Hou Q (2013) The effectiveness of the mandatory disclosure of independent directors’ opinions: empirical evidence from China. J Account Pub Policy 32(3):89–125

Vafeas N (1999) Board meeting frequency and firm performance. J Financ Econ 53(1):113–142

Wang L (2015) Protection or expropriation: politically connected independent directors in China. J Bank Finance 55:92–106

Weisbach MS (1988) Outside directors and CEO turnover. J Financ Econ 20:431–460

Wintoki MB, Linck JS, Netter JM (2012) Endogeneity and the dynamics of internal corporate governance. J Financ Econ 105(3):581–606

You J, Du G (2012) Are political connections a blessing or a curse? Evidence from CEO turnover in China. Corp Gov Int Rev 20(2):179–194

Zahra SA, Pearce JA (2016) Boards of directors and corporate financial performance: a review and integrative model. J Manag 15(2):291–334

Title: Frequencies of board meetings on various topics and corporate governance: evidence from China
Authors: Jiao Ji
Oleksandr Talavera
Shuxing Yin
Publication date: 05-01-2019
Publisher: Springer US
Published in: Review of Quantitative Finance and Accounting / Issue 1/2020
Print ISSN: 0924-865X
Electronic ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-018-00784-2

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 1/2020

Intra-industry information transfer effects of leading firms’ earnings narratives

Oil shocks and volatility jumps

The effect of chief financial officers’ accounting expertise on corporate tax avoidance: the role of compensation design

Suboptimal international equity portfolio diversification and stock market development

A study of data-driven momentum and disposition effects in the Chinese stock market by functional data analysis

On the Market Timing of Hedging: Evidence from U.S. Oil and Gas Producers