Does independent directors’ monitoring affect reputation? Evidence from the stock and labor markets

Effects of appointing new independent directors who are professionally affiliated with their predecessors: Evidence from China

“…Thus, board independence may not be sufficiently maintained under weak external governance, even when more ID candidates are available in the labor market, which is consistent with the findings of Du et al. (2018).…”

“…IDs who are familiar with many ID candidates can more easily help insiders to identify which candidates will be compliant when the ID supply is large. Thus, board independence may not be sufficiently maintained under weak external governance, even when more ID candidates are available in the labor market, which is consistent with the findings of Du et al (2018).…”

“…Third, our paper complements the recent literature on the relation between ID voting records and future appointments using data from Chinese listed firms. The only recent studies closely related to ours are those of Jiang et al (2016) and Du et al (2018). Jiang et al (2016) showed that IDs who have dissented in board meetings are considered diligent and reputable, and thus are rewarded by the labor market with more directorships.…”

“…However, Du et al. (2018) identified a dilemma: “the labor market does not reward vigilant IDs for standing up to firm insiders, although investors add a premium to effective board monitoring.” Our paper provides new evidence to explore this contradiction: we found that among the candidates in the labor market, those with dissenting voting records were more likely to be appointed to new directorships, suggesting that the labor market values dissenting votes as a sign of good monitoring. However, succeeding candidates were more likely to be appointed if they were professionally affiliated with their predecessors and had entirely compliant voting records, indicating that dissenting votes were less favored when there was a reciprocity relationship between insiders and affiliated IDs.…”

Social hierarchy effect of political strategy: Exploring chairman's political position influence on independent directors' dissent

“…Hence, independent directors will also be concerned about the social costs of opposing a board chairman with political position. Du et al (2018) found that independent directors who opposed board decisions not only suffered turnover from the opinion‐receiving firm but also lost directorships in other firms. Given that opinion conformity works as a normative rule among corporate elites to invoke reciprocity, directors who conform more with the powerful insiders are rewarded with more directorships and benefits (Westphal & Stern, 2006), otherwise they will experience the sanction of the whole elite group (Westphal & Khanna, 2003).…”