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Frequencies of board meetings on various topics and corporate governance: evidence from China

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Abstract

This paper examines the relationship between number of topic-specific board meetings and quality of corporate governance. The quality of corporate governance is estimated by CEO turnover-performance and compensation-performance sensitivities. Information about topic-specific meetings is collected from the reports of independent directors of Chinese listed firms. We find that more frequent discussions of growth strategies related to the use of IPO proceeds, investment and acquisitions increase CEO compensation-performance sensitivity. By contrast, more discussions about the nomination of directors and top management are likely to reduce the sensitivities of both CEO turnover and compensation to performance. Our findings shed light on what makes boards efficient, and how board monitoring of assorted decisions modifies the relationship between CEO interests and firm performance.

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Notes

  1. The Code of Corporate Governance for Listed Companies in China in 2001 and 2002.

  2. We also used eleven topics in robustness tests (available upon request). Our main results were unchanged.

  3. Industry dummies are included because listed firms may change main business sectors during the sample period. The untabulated coefficients of the industry dummies prove the existence of within-group variance for most industries.

  4. We also estimate Eq. (1) using random effects, and the main results are consistent with those obtained using fixed effects. The results of a Hausman test indicate that the firm-fixed-effects models in our study are more suitable.

  5. We use stock returns and Tobin’s Q as performance measures, and find that market performance plays a limited role in explaining the probability of CEO dismissal or the size of compensation, which is consistent with the finding of Conyon and He (2014).

  6. To obtain robust results, we also regress CEO dismissal on ROA, topic-specific meetings and their interactions from t − 3 to t − 1, and we find that the interactions from t − 3 to t − 1 are not significant for six types of meetings (Panel C). The joint significance test shows that CEO dismissal is negatively related to the long-term effect of ROA, but the long-term effects of interactions between meeting and ROA are not significant. The results are similar with those using accumulated industry adjusted ROA. These results should be treated carefully since the insignificant relationship could be caused by the smaller sample size.

  7. To obtain Excess Compensation, we estimate the following cross-sectional regressions for each industry classification within the fiscal year from 2005 to 2015: \(Compensation_{jt} = \, Log\left( {firm\;size} \right)_{jt} + ROA_{jt} + Board\;size_{jt} + Independent\;director\;\%_{jt} + Ownership\;Concentration_{jt} + e_{jt} .\) The firm-specific annual excess compensation for firm j (in a given industry) in year t, εjt, is the residual of the regression of the above equation for that particular industry.

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Authors and Affiliations

  1. University of Sheffield Management School, Conduit Rd, Sheffield, S10 1FL, UK

    Jiao Ji & Shuxing Yin

  2. University of Birmingham, Edgbaston, Birmingham, B15 2TT, UK

    Oleksandr Talavera

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Appendices

Appendix 1

An Examples of Independent Director’ Reports. Compensation (2) and Loan Guarantees (5) were discussed on 27 April 2007 in board meeting of Wuhan Zhongnan Commercial Group Co., Ltd (WHZS, 000,785).

Stock trading code: 000785 (SHE)

Company name: Wuhan Zhongnan Commercial Group Co., Ltd (WHZS)

Announcement date: 27 April 2007

Independent directors: Tan, Liwen; Li, Yanping; Xie, Huobao

Topic code: 2-Compensation; 5-Loan Guarantees

Opinion type: unqualified opinion

Content:

Pursuant to the “Guiding Opinions on Establishing Independent Directors in Listed Companies”, “Shenzhen Stock Exchange Listing Rules”, “Articles of Association”, and other related regulations, we would like to issue the following opinion on WHZS’s following two following issues passed at the fourth meeting of the sixth session of the board of directors:

First, to our best knowledge, we agree that compensations of directors and senior management in 2006 have meet the plan requirements-” the implementation plan of company directors and senior management compensation in 2006″ approved by the annual General Meeting (2005)

Second, based on the annual report 2006 of WHZS, the audit report 2006 (2007-421), and the “Special statement of controlling shareholders and other related parties possessing fund of the listed firm”(2007-148) provided by Wuhan Zhonghuan Accounting Firms, we have carefully examined the incurred and accumulative amount of loan guarantees, we believe the loan guarantees for subsidiary companies in 2006 was 160 million RMB, accumulated to 260 million. No other loan guarantees for related parties happened in 2006

Appendix 2

See Table 9.

Table 9 Correlation of main variables
Full size table

Appendix 3

See Table 10.

Table 10 CEO dismissal, board meetings and firm long-term performance
Full size table

Appendix 4

See Table 11.

Table 11 Dynamic panel data analysis on the effects of meetings on the six major topics on the sensitivity of CEO compensation to firm performance
Full size table

Appendix 5

See Table 12.

Table 12 The number of words for each topic and quality of corporate governance
Full size table

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Ji, J., Talavera, O. & Yin, S. Frequencies of board meetings on various topics and corporate governance: evidence from China. Rev Quant Finan Acc 54, 69–110 (2020). https://doi.org/10.1007/s11156-018-00784-2

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