Jing Liao

Independent Directors’ Characteristics and Performance: Evidence from China

Chinese listed firms recruit independent directors in order to build up connections with people who can provide useful sources and/or protection rather than for their monitoring of top managements. It is found that Chinese listed firms particularly prefer two types of Guanxi provided by independent directors: 43.76% of the independent directors are university scholars or researchers; and 13.88% of them are politically connected. Moreover, the relationship between Tobin’s Q and the presence of scholars and politically connected independent directors on boards is significantly negative. Furthermore, scholars, commercial bankers and politically connected independent directors can add value to large and diversified firms, high leveraged firms, and firms without political connections, respectively. Finally, the recruitment of independent directors does not reduce the related party transactions between the listed firms and their controlling shareholders, but instead, firms with politically connected CEOs, and firms with a government bureaucrat as the largest shareholder engage in less related party transactions.

The Advisory Role of the Board: Evidence from the Implementation of Independent Director System in China

This paper explores the empirical results of the implementation of an independent director system in China. The results show that firms implement board independence by adding extra members, instead of removing inside directors, except in the case where the board size (before the recruitment of independent directors) has already been too large. It has been identified that large firms prefer a large board with more independent directors on the board. However, the largest shareholders have a strong incentive to organise a small and insider-controlled board. Although there is a negative relationship between board size, board independence and firm performance, Tobins Q increases in relation to board size and board independence for large firms.

Politically connected CEOs and earnings management: evidence from China

ABSTRACT This paper examines the impact of politically connected CEOs on earnings management in Chinese listed firms. The results show that firms with politically connected CEOs engage in significantly lower levels of accrual-based earnings management than firms without politically connected CEOs. We then find evidence that firms with politically connected CEOs conduct significantly higher levels of real earnings management, which is more difficult to detect than accrual-based earnings management, and that in non-state-controlled firms, where government support is less, the presence of politically connected CEOs is positively related to accruals manipulation. We draw regulators’ attention to the fact that using accrual-based earnings management measures alone may underestimate the earnings management activities of firms with politically connected CEOs. Our findings are robust after controlling for possible endogeneity.

From share issue privatisation to non‐tradable share reform: a review of privatisation in China

Privatisation in China has proceeded on a gradual path over 30 years. In this paper, we present a detailed review of Chinas privatisation programmes from its Share Issue Privatisation (SIP) to its Non‐tradable Share (NTS) reform. The SIP was a primary offering process with state‐owned enterprises (SOEs) issuing new shares to private investors, but after their Initial Public Offering (IPO) approximately two‐thirds of the shares remained non‐tradable and were mainly held by the government. The SIP achieved only limited success because of its partial trading and partial privatisation, which led to the implementation of the NTS reform in 2005. The NTS reform aimed to dismantle the split share structure and provide opportunities for improving corporate governance and further privatisation. The review shows that the NTS reform has yielded greater success in improving firm performance and corporate governance than the SIP.

Macroeconomic Uncertainty, State Ownership, and Board Size in China

This paper examines the impacts of macroeconomic uncertainty, state ownership and board composition on firm performance. First, we find state ownership is negatively related to firm performance measured by return on assets and Tobin’s Q. However, Tobin’s Q increases with state ownership when firms face a higher level of macroeconomic uncertainty. The strong positive incremental effect of state ownership on Tobin’s Q is robust when controlling for possible endogeneity. Second, we add evidence to the negative relationship between board size and firm performance. But we further show that Tobin’s Q increases with board size when the level of macroeconomic uncertainty is high. Our results indicate that connections/resources provided by directors and through the ownership arrangement are valuable to cope with macroeconomic uncertainty.