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Corporate Board Structure and Corporate Performance: Empirical Analysis of Listed Companies in China

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Abstract

Using cross section data of 3 years 2000, 2007, and 2014 for non-financial listed firms in China, this study quantitatively analyzes the relationship between government-affiliated corporate executives and corporate performance. We classify the sample firms into two groups, based on whether their chief executive officers (CEOs) and independent directors are prior government officials or not. Then, we empirically examine the difference in corporate performance between the two groups. We find that the appointment of CEOs and directors of listed companies in China is significantly affected by government shareholders. The results also suggest that prior to 2000 government-affiliated CEOs impaired corporate performance. But with the establishment of State-owned Assets Supervision and Administration Committee and the completion of the Split-Share Structure Reform in 2006, government as a shareholder began to give priority to corporate value maximization, and government-affiliated CEOs began to help improve corporate performance. However, due to the slowdown of economic growth after 2012, problems such as inefficiency and corruption brought by government-affiliated executives manifested again, and therefore, corporate performance deteriorated. Meanwhile, government-affiliated independent directors have limited influence on these factors.

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Notes

  1. First mentioned by President Xi Jinping in 2014. This term came to refer to expectations of 7% growth rates in China for the foreseeable future. It was indicative of the Chinese government`s anticipation of moderate but perhaps more stable economic growth in the medium-to-long term.

  2. Politically connected independent directors are hired as a source of advice and counsel rather than monitoring (Han and Zhang 2016).

  3. Politically connected independent directors may be paid by some other sorts of benefit from the management team for their service to the managers only (Beetsman et al. 2000), or be used for government shareholder's political purposes and social interests, e.g., cross-subsidizing other SOEs encountering financial difficulties or over-investing to reduce unemployment and increase GDP (Wang 2015).

  4. Recourses like bank finance (Firth et al. 2009), government subsidies (Wu et al. 2012a), and tax benefits (Wu et al. 2012b).

  5. Company Law of People’s Republic of China.

  6. [Temporary Measures for Regulating Employees of the Ministry of Finance Holding Part-time Positions in Enterprises] publicized by Ministry of Finance, in 2010.

  7. [Notice on the Part-time Employment of Communist Party Members and Cadres of Colleges and Universities] published by the Communist Party of Ministry of Education of China, in 2011.

  8. [Interim Regulations for Employees' Disposition of Public Institutions] published by the Human Resources and Social Security Department and Supervision Department, in 2012.

  9. This number is based on 2014, and when tracing back to the past, the number of companies decreases. There are only governance data for only 949 companies in 1999.

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Author information

Authors and Affiliations

  1. Graduate School of Commerce and Management, Hitotsubashi University, Kunitachi, Japan

    Le Wang & Masaharu Hanazaki

  2. Research Center for East Asia Policy, Hitotsubashi University, Kunitachi, Japan

    Qun Liu

Authors
  1. Le Wang
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  2. Qun Liu
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  3. Masaharu Hanazaki
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Corresponding author

Correspondence to Le Wang.

Appendix

Appendix

T test result of statistical description by attributes

 

Model 1

Model 2

Model 3

Model 4

Model 5

Model 6

Model 7

Model 8

Model 9

cen v.s. loc

loc v.s. pri

cen v.s. pri

cen v.s. loc

loc v.s. pri

cen v.s. pri

cen v.s. loc

loc v.s. pri

cen v.s. pri

Panel A

ROA

− 5.59

7.00

1.41

      

[− 7.49]***

[15.92]***

[3.28]***

      

ROE

   

− 10.76

13.85

3.09

   
   

[− 7.28]***

[15.33]***

[2.94]***

   

DEBT

      

− 0.56

2.13

1.57

      

[− 0.46]

[2.46]**

[1.14]

N

2701

3694

1913

2700

3693

1913

2699

3692

1913

Panel B

state_CEO

0.09

0.18

0.27

      

[3.10]***

[8.92]***

[9.44]***

      

sale_growth

   

− 4.83

2.10

− 2.73

   
   

[− 2.38]**

[1.36]

[− 1.17]

   

top10

      

4.16

0.11

4.27

      

[4.57]***

[0.19]

[4.72]***

N

1423

2310

1607

2195

3175

1884

1608

2678

1836

Panel C

board_number

0.32

0.61

0.93

      

[2.54]**

[7.88]***

[8.38]***

      

ID_ratio

   

2.88

− 7.90

− 5.01

   
   

[2.97]***

[− 14.01]***

[− 6.73]***

   

N

1608

2673

1833

1601

2663

1828

   

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Wang, L., Liu, Q. & Hanazaki, M. Corporate Board Structure and Corporate Performance: Empirical Analysis of Listed Companies in China. Fudan J. Hum. Soc. Sci. 12, 137–175 (2019). https://doi.org/10.1007/s40647-018-0232-0

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  • DOI: https://doi.org/10.1007/s40647-018-0232-0

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