Board independence, CEO succession and the scope of strategic change

Wei’an Li and Jian Xu

Nankai Business Review International, 2014, vol. 5, issue 3, 309-325

Abstract: Purpose - – This paper aims to examine the effectiveness of independent directors based on the perspective of strategic control. Design/methodology/approach - – This is an empirical study carried out between 2007 and 2012 based on a sample of Chinese A-share-listed companies. Findings - – The results indicate that the departure of a CEO provides conditions for the new CEO to become empowered to carry out strategic change. The behavior of a new CEO results in the phenomenon of “a new broom sweeps clean” and increases the scope of strategic change. In addition, the results indicate that the board’s independence negatively moderates the relationship between the CEO’s succession and the scope of strategic change, and that independent directors are effective in supervising risk-taking behavior on the part of the CEO which ultimately results in damaging company performance. Practical implications - – The corporate internal and external supervisory mechanisms should be improved during the process of succession of a new CEO, and the effectiveness of the supervision of board directors should also be strengthened during the implementation of the strategic process of a new CEO. Originality/value - – Previous research on the effectiveness of independent directors mostly focuses on financial control, with a single leap from independent directors to corporate performance, which neglects the strategic control of independent directors. From the micro perspective of the strategic control process as a means of discussing the independent directors’ watchdog role, this paper extends and enriches the research on “the effectiveness of independent directors”.

Keywords: China; CEO succession; Corporate governance; Strategic change; Board’s independence; Effective independent directors (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:nbripp:v:5:y:2014:i:3:p:309-325

DOI: 10.1108/NBRI-05-2014-0023

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