Many prior studies conclude that Chinese independent directors engage in window dressing. The
results of research into the relationship between the proportion of independent directors on the
board and firm performance are mixed. We use the number of negative opinions issued by a
firm’s independent directors as a proxy for their effectiveness in the monitoring role they play.
We hypothesize that both board structure and the personal characteristics of independent
directors influence the effectiveness of monitoring. Using a matched control sample of firms in
which there were no disputes in the board room over the sample period, we find that independent
directors who have more political capital, such as former government officials, Communist Party
members, and those who also have a senior management position in another firm are more likely
to issue negative opinions. We also find that the independent directors of firms with more
balanced power structure in board and those that operate in a better institutional environment
have a greater tendency to issue negative opinions.
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