Political Connection, Independent Director And Firm Performance

With the development of Chinese economy and capital market, the number of listed companies in China has gradually increased. In order to in line with international standards and improve China’s capital market order, China Securities Regulatory Commission promulgated an regulation, "Guidance on the establishment of independent director system in the liseted company" on Auguse 21,2001. This is a milestone of implementing the independent director system in China. Thereafter, the independent director system has been a hot topic in the field of corporate governance gradually. So far, the politically connected independent directors have been a significant component of independent directors in China. However, less attentition has been paid to the issues on politically connected independent directors in the academic field.In order to fill this gap in the academic field, on a political connection perspective, this dissertation aims to discuss two related issues. First, the impact of political connection on the employing of independent directors in Chinese private-owned listed firms. To this issue, this dissertation empirically examines the impact of non-independent directors’political connection on a firm’s probability of employing politically connected independent directors. Also, this dissertation examines the impact of year variation, area variation and industry variation on that probability. The second issue in this dissertation is the impact of independent directors’political connection on the firm performance of private-owned listed firms in China. In doing so, this dissertation builds an analytical framework to examine the impact of independent directors’political connection on firm performance, from the perspectives of principal-agent theory and informal institution.Based on the analytical framework, this dissertation empirically examines four questions. First, is independent director’s political connection helpful to improve the corporate governance performance of private-owned listed firm in China? Second, can independent director’s political connection bring firm more valuable policy rescources, and in turn have positive impact on the economic performance of private-owned listed firm in China? Third, does the impact of independent director’s political connection on firm performance differ by the types of political connection? Finally, does regional institututional environment have impact on the relations between independent director’s political connection and firm performance of private-owned listed firm in China?Based on the literature review, analytical framework building and empirical study, this dissertation has four main findings. First, on the independent director employing issue, the empirical results suggest that compared to the private-owned listed firm without politically connected non-independent directors, the private-owned listed firm with politically connected non-independent directors is more available to employ politically connected independent director in China. Moreover, the factors like year variation, area variation and industry variation are all influencial on the probability of employing politically connected independent directors in China.Second, on a principal-agent theory perspective, to some extent, the independent director’s political connection can improve the corporate governance performance of private-owned listed firms in China. It has positive impact on restricting the scale of related part transaction of private-owned listed firms in China, while does not have significant impact on improving the information disclosure quality of these firms.Third, on an informal institution perspective, the independent director’s political connection can bring firm more government subsidies, and in turn has positive impact on the economic performance of private-owned firm in China. However, the regression results also show that the positive impact of government subsidies on economic performance of firm has a character of time-lag. To date, the impact of independent director’s political connection on firm’s government subsidies gain differs by the types of political connection. That is, whether a private-owned listed firm in China has an independent director who is (or was) a government official, matters to the government subsidies gain of firm. While, it is not the same to the independent director as a memner of the National People’s Congress or Chinese People’s Political Consultative Conference. Moreover, the empirical results also indicate that the private-owned listed firms with independent director’s political connections to a higher level of governments can gain more government subsidies.Finally, in the process of China’s economic transition, the variation of institututional environment among regions is influencial to the relation between independent director’s political connection and firm performance. Specificly, after considering the varication of institutional environment among regions, the impact of independent director’s political connection on restricting the related part transaction size of firm significantly increases. However, this does not work on the improving of information transparency of private-owned listed firms in China. Besides, compared to the private-owned listed firms in a better institutional environment, the positive impact of government subsidies on firm’s economic performace is lower to the private-owned listed firms in a worse institutional environment. Generally, these empirical results improve the understanding on the impact of independent director’s political connection on firm performance in the field of corporave governance. In addition, the results also releal the impact of politics and institutions on firm behavior and firm performance in the process of China’s economic transformation to some extent.This dissertation has four main innovative points. First, this dissertation expands the studies about the employing of independent director and the impact of independent director’s political connection on firm performance in the corporate governance field with a perspective of political connection. Second, based on the principal-agent theory and the informal institution perspective, this dissertation builds an analytical frameword to examine the impact of independent direcotr’s political connection on firm performance. Third, according to the political and administrative systems in China, this dissertation divides politically connected independent directors into two types:the independent directors with political connections as a government official, and the independent directors with political connections as a member of the National People’s Congress or Chinese People’s Political Consultative Conference. This is additional to the classification and measure of political connection. Finally, this dissertation introduces a moderate variable, the variation of institutional environment among regions. In doing so, this dissertation can releal the impact of institional environment on the relation between independent director’s political connection and firm performance in the process of China’s economic transition. To date, there remain some shortcomings in this dissertation. Based on the remaining shortcomings, this dissertation argues some suggestions for further studies in the last section of the dissertation.