Value of Politically Connected Independent Directors: Evidence from the Anti-Corruption Campaign in China

Value of Politically Connected Independent Directors: Evidence from the Anti-Corruption Campaign in China

Chang Zhang

Series number :

Serial Number: 
627/2019

Date posted :

September 02 2019

Last revised :

September 02 2019
SSRN Share

Keywords

  • political connections • 
  • Independent Directors • 
  • Political risk • 
  • firm value

A new regulation issued in the end of 2013 as part of the anti-corruption campaign in China leads to a wave of resignation of politically connected independent directors (PCID).

I find while firms with PCIDs have negative cumulative abnormal return (CAR) around release of the new regulation, they have even larger positive CAR around announcement of PCID resignations, especially for non-SOEs. This is because fims with PCIDs have higher political risk after release of the regulation, but their political risk decreases after PCIDs resign and they are complied with the regulation. I also show operating performance does not change after PCID resignations, casting doubt on the "helping hand" theory of political connections.

Authors

Real name:
Chang Zhang