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Politically connected boards, value or cost: evidence from a natural experiment in China

Citation

Han, J and Zhang, G, Politically connected boards, value or cost: evidence from a natural experiment in China, Accounting and Finance pp. 1-21. ISSN 0810-5391 (2016) [Refereed Article]


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Abstract

This study investigates the net effect of a politically connected board for a firm. Using a natural experiment in China a regulatory change to forbid bureaucrats from sitting on the board of public firms we address the causality of the net effect of a politically connected board by testing the market reaction of the shares of firm targeted by the regulatory change to the policy announcement. The stocks of firms with politically connected directors who are targeted by the regulatory change show on average a significantly positive abnormal return, which suggests that the agency cost effect of a politically connected director dominates the value effect. The result is robust to various model settings and to a matched sample using the propensity score methodology. Additionally, the announcement effect of the resignation of a politically connected director is significantly positive, and significantly higher than that of a non-connected director. Overall, our results suggest that the agency cost effect of a politically connected director dominates the value effect.

Item Details

Item Type:Refereed Article
Keywords:political connection, outside director, regulatory change, resignations
Research Division:Commerce, Management, Tourism and Services
Research Group:Banking, Finance and Investment
Research Field:Finance
Objective Division:Commercial Services and Tourism
Objective Group:Financial Services
Objective Field:Finance Services
Author:Han, J (Mr Jianlei Han)
ID Code:118524
Year Published:2016
Deposited By:Tasmanian School of Business and Economics
Deposited On:2017-07-13
Last Modified:2017-07-13
Downloads:0

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