File(s) under permanent embargo
Politically connected boards, value or cost: evidence from a natural experiment in China
journal contribution
posted on 2023-05-19, 07:31 authored by Han, J, Zhang, GThis 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.
History
Publication title
Accounting and FinanceVolume
58Pagination
149-169ISSN
0810-5391Department/School
TSBEPublisher
Wiley-Blackwell Publishing AsiaPlace of publication
AustraliaRights statement
Copyright 2016 AFAANZRepository Status
- Restricted