 Politically connected boards, value or cost: evidence from a natural experiment in ChinaJianlei Han and Guangli Zhang Accounting and Finance, 2018, vol. 58, issue 1, 149-169 Abstract: This study investigates the net effect of a politically connected board for a firm. Using a natural experiment in China – a regulatory change to forbid bureaucrats from sitting on the board of public firms – we address the causality of the net effect of a politically connected board by testing the market reaction of the shares of firm targeted by the regulatory change to the policy announcement. The stocks of firms with politically connected directors who are targeted by the regulatory change show on average a significantly positive abnormal return, which suggests that the agency cost effect of a politically connected director dominates the value effect. The result is robust to various model settings and to a matched sample using the propensity score methodology. Additionally, the announcement effect of the resignation of a politically connected director is significantly positive, and significantly higher than that of a non‐connected director. Overall, our results suggest that the agency cost effect of a politically connected director dominates the value effect. Date: 2018 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:acctfi:v:58:y:2018:i:1:p:149-169 Ordering information: This journal article can be ordered from Access Statistics for this article Accounting and Finance is currently edited by Robert Faff More articles in Accounting and Finance from Accounting and Finance Association of Australia and New Zealand Contact information at EDIRC. |
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