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Review of Quantitative Finance and Accounting

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05.01.2019 | Original Research

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

verfasst von: Jiao Ji, Oleksandr Talavera, Shuxing Yin

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 1/2020

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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.

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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.

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Titel: Frequencies of board meetings on various topics and corporate governance: evidence from China
verfasst von: Jiao Ji
Oleksandr Talavera
Shuxing Yin
Publikationsdatum: 05.01.2019
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 1/2020
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-018-00784-2

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