Multifunction of Bureaucratic Independent Directors and Firm Value
ZHU Kai, LIN Xu, HONG Yixin, CHEN Xinyuan
Institute of Accounting and Finance, Shanghai University ofFinance and Economics; School of Accountancy, ShanghaiUniversity of Finance and Economics; Shenwan Hongyuan Securities Co., Ltd.
Abstract:
This paper focuses on the 18th document in 2013 issued by the Organization Department of the Central Committee of the CPC, and analyzes the potential impact on stock prices of listed companies caused by the consequent resignations of politically-connected independent directors. This paper works on 312 samples of independent director resignations after the issue of the document, and finds that (1) Private firms that hire politically-connected independent directors have higher dividend payout ratio, ceteris paribus, which implies that the politically-connected independent directors not only provide the political resources but also improve the level of investor protection; (2) It did impair the market value of companies, especially for those private enterprises, the first time a resignation announcement was explicitly related to the 18th document.Our findings show that firms obtain political resources by hiring politically-connected independent directors,while politically-connected independent directors urge firms to follow the capital market rules,which improves the level of investor protection.
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