Independent Directors' Board Meeting Attendance,Dissent Behavior And Corporate Governance Effect

The independent director system is an integral part of the corporate governance mechanism.Independent directors play a vital role in supervising listed companies.Independent directors,nominated by the board of directors,the board of supervision or shareholders,and elected at the shareholder meeting,perform their duties of integrity and diligence and supervise listed companies on behalf of small and medium investors.Although prior research finds a positive correlation between the independent directors' dissent and firm information environment,there is no direct evidence that the dissension contributes to the quality of accounting information.Theoretically,the professional ability and reputation value of independent directors play a role in improving the quality of accounting information.However,in reality,independent directors' duty execution behavior has raised disputes about independent directors' role in both academic studies and enterprises practice.Existing academic research has found that independent directors who concurrently serve multiple companies are more likely to be absent from board meeting or entrusted to attend the board meeting due to limited energy.Although independent directors' dissent can help improve the company's accounting performance and market value,independent directors' dissent is extremely rare.The behavior of independent directors is the balance of cost and benefit based on the assumption of economic man.According to the theoretical analysis,tighten the independent directors' behavior regulation can encourage them to perform more diligently by increasing the costs of shirking responsibilities.Whether the independent directors can behave more diligently and have better governance effect under a stricter external regulation is not only a hot topic of academic research,but also raises great attention in corporate governance practices.China's unique institutional environment provides an opportunity for this study.The Shanghai Stock Exchange enacted the Guidelines for the Selection and Conduct of Directors of Listed Companies on the Shanghai Stock Exchange(hereinafter called the Guidelines)on August 25,2009.The Guidelines emphasize that independent directors who miss over half the number of board meetings in person during a year are not eligible as directors of listed firms for at least three years.This requirement is a stricter and quantitative attendance requirement compared with the previous regulations.However,in contrast,there are no similar attendance requirements for directors who serve firms that are listed on the Shenzhen Stock Exchange(hereinafter called the SZSEIDs)until 2017,when the revision of the Record Measures for the Independent Directors of Shenzhen Stock Exchange(hereinafter called the Measures)was enacted.Therefore,the board meeting attending requirements for directors who serve firms that are listed on the Shanghai Stock Exchange(hereinafter called the SHSEIDs)is much higher than the SZSEIDs between 2009 and 2017.The regulatory requirement of the Shanghai Stock Exchange is an exogenous shock on the independent directors' attendance behavior and has no direct effect on the accounting information quality.Besides,this regulation impacts the dissent of independent directors.On the one hand,attending the board meeting provides independent directors with opportunity to gain information and express opinions on board proposals.It helps independent directors obtain “soft information” of listed companies and reduce information asymmetry with listed companies.On the other hand,attending the board meeting promotes discussion on proposals and improves the reliability of independent directors' opinions.The attendance and dissent behavior are of vital importance for independent directors' supervising effect.Therefore,the implementation of the Guidelines provides an opportunity for the dissent study of independent directors.This dissertation is based on the Principal-Agent Theory,Corporate Governance Theory and Law and Finance Theory,and takes advantage of the difference in independent director attendance requirements between the Shanghai and Shenzhen Stock Exchanges after the enaction of the Guidelines.This dissertation takes Shanghai and Shenzhen A-share listed companies from 2006 to 2017 as the sample and firstly tests whether the implementation of the Guidelines in 2009 has increased the personal attendance rate of independent directors,and then examines whether the probability of dissent by independent directors has increased after the implementation of the Guidelines.Finally,the dissertation analyzes the impact of independent director dissent on accounting information quality.The main conclusions of this dissertation are as follows:Firstly,the dissertation examines the influence of directors' attendance regulation on the board meeting attendance of independent directors.The dissertation finds that after the implementation of the Guidelines by the Shanghai Stock Exchange in 2009,compared with the SZSEIDs,the personal attendance rate of SHSEIDs has increased to a higher level.The result is more significant for independent directors with a legal background or independent directors in firms with a better legal environment.The results show that external regulation can effectively discipline the directors' board meeting attendance and encourage directors to behave diligently.This dissertation further examines the directorship of independent directors and finds that when external regulatory pressure increases,SHSEIDs may avoid regulatory risks by shifting directorships from strict regulatory positions to lenient regulatory ones.Secondly,the dissertation examines the impact of external regulation on directors' vote behavior.The dissertation finds that after the Shanghai Stock Exchange implements the Guidelines and tightens independent directors' attendance requirements,the dissent probability of SHSEIDs increases more compared with the SZSEIDs.Also,the results are more significant on the rookie directors,highly reputed directors,or independent directors in firms with higher levels of earnings management or firms received modified audit opinions.Further tests show that after the implementation of the Guidelines,the accounting performance and market value of listed firms on the Shanghai Stock Exchange have increased more.Finally,the dissertation studies the influence of independent director dissent on accounting information quality.The results show that compared with firms without independent directors' dissent,the accrual quality increases more after the independent directors vote against the proposals.This effect is more pronounced when firms have larger proportion of highly reputed directors or directors with financial background.This effect is also more significant in firms with severe shareholder tunneling motives and behaviors.The research shows that independent director dissent can improve earnings quality.The academic contributions of the dissertation are manifested in:(1)Enriching the study of governance effect of independent directors' dissent and addressing the endogeneity problem with director behavior regulation.Existing studies have examined the market response of independent director dissent,and the economic consequence of dissent on the firm value and the stock price crash risk,which shows that independent directors' dissent could improve the information environment.But whether independent director dissent can directly enhance the accounting information quality remains to be studied.The dissertation finds that independent directors' dissent can improve the earnings quality and complement the governance research of dissent from the perspective of the accounting information quality.Besides,this dissertation takes advantage of the regulation difference between Shanghai and Shenzhen Stock Exchanges to construct instrumental variables to solve the endogenous problem and ensure the reliability of the results.(2)Enriching the research on the impact of external regulation on the effectiveness of corporate governance.Existing research has examined the effect of external regulation on the effectiveness of shareholder governance,and how external regulation affects the identification and rectification of problems on corporate governance mechanisms.These studies have focused on the external regulation of the China Securities Regulatory Commission,the Ministry of Finance.However,rare researches study the regulation of stock exchanges.The dissertation finds that the regulatory requirements for directors' behavior increase the independent directors' personal attendance and the dissent probability,which enriches the research on the effect of external regulation on corporate governance effectiveness from the perspective of the independent directors' behavior,and also supplements the literature from the stock exchange level regulation.(3)Expanding the research on independent directors' behavior.Existing studies have examined the factors and economic consequences of independent directors' attendance and vote behavior separately,but the relationship between attendance and vote behavior are not studied.This dissertation takes the independent directors' attendance and dissent as two aspects of the independent directors' duty execution behavior and examines the effect of attending regulation on the dissent behavior of independent directors.The practical contributions of the dissertation are as follows:(1)providing empirical evidence for improving the regulation of independent directors;(2)encouraging listed firms to implement the regulations of directors;(3)motivating independent directors to behave more diligently;(4)inspiring investors to identify the signals of independent directors' dissent.