Skip to main content
SpringerLink
Log in

Removing Vacant Chairs: Does Independent Directors’ Attendance at Board Meetings Matter?

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

In this paper we investigate whether independent directors’ attendance at board meetings enhances investor protection using a difference-in-difference approach. We find that independent directors’ attendance alleviates tunneling. This effect is more pronounced in non-state-owned enterprises (non-SOEs) than in state-owned enterprises. The reinforcement of external supervision substitutes for the role of independent directors’ attendance and this substitution effect is more significant in non-SOEs. Together, these results imply that independent directors’ attendance at board meetings can play an important role in protecting investors, especially in non-SOEs and when external supervision is weak. This paper sheds new light on independent directors’ function in corporate governance, and has implications for institutional improvements.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. The legalization index reported by Fan et al. (2011) ends in 2009. Our sample period is 2004–2011, implying that we cannot obtain legalization index data for the 2010–2011 period. As the rankings of legalization level are quite stable, we use the legalization index of 2009 to proxy for the legislation index of this district in 2010–2011.

  2. This means the potential heterogeneous behavioral responses problem in difference-in-difference approach is not severe in the paper.

  3. A prerequisite for the validity of the difference-in-difference assumption is that the program is not implemented based on the pre-existing differences in outcomes. An important target of the Notice is to restrict tunneling and the Notice applies to all listed firms in China, no matter they are SOEs or non-SOEs. Therefore, the Notice is not implemented based on the pre-existing differences in Tun between non-SOEs and SOEs. Moreover, the Notice does not affect the ownership nature of firms, so our classification of non-SOEs and SOEs is not based on the Notice. Hence, the “targeting based on differences” problem is not serious in this paper.

References

  • Agrawal, A., & Knoeber, C. R. (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of Financial and Quantitative Analysis, 31(03), 377–397.

    Article  Google Scholar 

  • Ahmed, A. S., & Duellman, S. (2007). Accounting conservatism and board of director characteristics: An empirical analysis. Journal of Accounting and Economics, 43(2), 411–437.

    Article  Google Scholar 

  • Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency cost and ownership structure. Journal of Finance, 55(1), 81–106.

    Article  Google Scholar 

  • Ashbaugh-Skaife, H., Collins, D. W., & LaFond, R. (2006). The effects of corporate governance on firms’ credit ratings. Journal of Accounting and Economics, 42(1), 203–243.

    Article  Google Scholar 

  • Beasley, M. S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. The Accounting Review, 71(4), 443–465.

    Google Scholar 

  • Berkman, H., Cole, R. A., & Fu, L. J. (2009). Expropriation through loan guarantees to related parties: Evidence from China. Journal of Banking & Finance, 33(1), 141–156.

    Article  Google Scholar 

  • Bhagat, S., & Black, B. (2002). The non-correlation between board independence and long-term firm performance. Journal of Corporation Law, 27, 231–273.

    Google Scholar 

  • Bhojraj, S., & Sengupta, P. (2003). Effect of corporate governance on bond ratings and yields: The role of institutional investors and outside directors. The Journal of Business, 76(3), 455–475.

    Article  Google Scholar 

  • Boycko, M., Shleifer, A., & Vishny, R. W. (1996). A theory of privatisation. The Economic Journal, 106(435), 309–319.

    Article  Google Scholar 

  • Brickley, J. A., Coles, J. L., & Terry, R. L. (1994). Outside directors and the adoption of poison pills. Journal of Financial Economics, 35(3), 371–390.

    Article  Google Scholar 

  • Brickley, J. A., & James, C. M. (1987). The takeover market, corporate board composition, and ownership structure: The case of banking. Journal of Law and Economics, 30(1), 161–180.

    Article  Google Scholar 

  • Byrd, J. W., & Hickman, K. A. (1992). Do outside directors monitor managers?: Evidence from tender offer bids. Journal of Financial Economics, 32(2), 195–221.

    Article  Google Scholar 

  • Chen, G., Firth, M., Gao, D. N., & Rui, O. M. (2006). Ownership structure, corporate governance, and fraud: Evidence from China. Journal of Corporate Finance, 12(3), 424–448.

    Article  Google Scholar 

  • Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51(3), 371–406.

    Article  Google Scholar 

  • Cotter, J. F., Shivdasani, A., & Zenner, M. (1997). Do independent directors enhance target shareholder wealth during tender offers? Journal of Financial Economics, 43(2), 195–218.

    Article  Google Scholar 

  • Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the sec. Contemporary Accounting Research, 13(1), 1–36.

    Article  Google Scholar 

  • Duchin, R., Matsusaka, J. G., & Ozbas, O. (2010). When are outside directors effective? Journal of Financial Economics, 96(2), 195–214.

    Article  Google Scholar 

  • Fama, E. F., & Jensen, M. C. (1983). Agency problems and residual claims. Journal of Law and Economics, 26(2), 327–349.

    Article  Google Scholar 

  • Fan, G., Wang, X. L., & Zhu, H. P. (2011). Chinese Market Index: 2011 report on regional relative marketization process. Beijing: Economic Science Press.

    Google Scholar 

  • Ferris, S. P., Jagannathan, M., & Pritchard, A. C. (2003). Too busy to mind the business? Monitoring by directors with multiple board appointments. The Journal of Finance, 58(3), 1087–1112.

    Article  Google Scholar 

  • Fich, E. M., & Shivdasani, A. (2006). Are busy boards effective monitors? The Journal of Finance, 61(2), 689–724.

    Article  Google Scholar 

  • Jiang, G., Lee, C., & Yue, H. (2010). Tunneling through intercorporate loans: The China experience. Journal of Financial Economics, 98(1), 1–20.

    Article  Google Scholar 

  • Klein, A. (1998). Firm performance and board committee structure. The Journal of Law and Economics, 41(1), 275–304.

    Article  Google Scholar 

  • Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33(3), 375–400.

    Article  Google Scholar 

  • La Porta, R., Lopez-De-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. The Journal of Finance, 54(2), 471–517.

    Article  Google Scholar 

  • Mace, M. (1986). Directors: Myth and Reality. Boston, MA: Harvard Business School Press.

    Google Scholar 

  • Mallette, P., & Fowler, K. L. (1992). Effects of board composition and stock ownership on the adoption of “poison pills”. Academy of Management Journal, 35(5), 1010–1035.

    Article  Google Scholar 

  • Mehran, H. (1995). Executive compensation structure, ownership, and firm performance. Journal of Financial Economics, 38(2), 163–184.

    Article  Google Scholar 

  • Park, Y. W., & Shin, H. H. (2004). Board composition and earnings management in Canada. Journal of Corporate Finance, 10(3), 431–457.

    Article  Google Scholar 

  • Peng, M. W. (2004). Outside directors and firm performance during institutional transitions. Strategic Management Journal, 25(5), 453–471.

    Article  Google Scholar 

  • Roberts, J., McNulty, T., & Stiles, P. (2005). Beyond agency conceptions of the work of the non-executive director: Creating accountability in the boardroom. British Journal of Management, 16(s1), S5–S26.

    Article  Google Scholar 

  • Rosenstein, S., & Wyatt, J. G. (1990). Outside directors, board independence, and shareholder wealth. Journal of Financial Economics, 26(2), 175–191.

    Article  Google Scholar 

  • Shivdasani, A., & Yermack, D. (1999). CEO involvement in the selection of new board members: An empirical analysis. The Journal of Finance, 54(5), 1829–1853.

    Article  Google Scholar 

  • Shleifer, A., & Vishny, R. W. (1994). Politicians and firms. The Quarterly Journal of Economics, 109(4), 995–1025.

    Article  Google Scholar 

  • Tang, Q. Q., Luo, D. L., & Wang, L. (2005). Controlling shareholders tunneling and resistant powers: The evidence from Chinese stock market. China Accounting Review, 1, 63–85.

    Google Scholar 

  • Vafeas, N. (2000). Board structure and the informativeness of earnings. Journal of Accounting and Public Policy, 19(2), 139–160.

    Article  Google Scholar 

  • Weisbach, M. S. (1988). Outside directors and CEO turnover. Journal of Financial Economics, 20, 431–460.

    Article  Google Scholar 

  • Xie, B., Davidson, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: The role of the board and the audit committee. Journal of Corporate Finance, 9(3), 295–316.

    Article  Google Scholar 

  • Xu, L. (2004). Types of large shareholders, corporate governance, and firm performance: Evidence from China’s listed companies. Working Paper.

  • Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185–211.

    Article  Google Scholar 

Download references

Acknowledgments

We appreciate comments and suggestions from three anonymous reviewers. Huilong Liu and Liansheng Wu acknowledge financial support from the National Natural Science Foundation of China (Nos. 71202028, 71332007 and 71025003).

Author information

Authors and Affiliations

  1. Business School, University of International Business and Economics, Beijing, 100029, China

    Huilong Liu

  2. Guanghua School of Management, Peking University, Beijing, 100871, China

    Hong Wang & Liansheng Wu

Authors
  1. Huilong Liu
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Hong Wang
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Liansheng Wu
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Liansheng Wu.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Liu, H., Wang, H. & Wu, L. Removing Vacant Chairs: Does Independent Directors’ Attendance at Board Meetings Matter?. J Bus Ethics 133, 375–393 (2016). https://doi.org/10.1007/s10551-014-2402-6

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-014-2402-6

Keywords

Search

Navigation