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Board independence, state ownership and stock return volatility during Chinese state enterprise reform

Board independence, state ownership and stock return volatility during Chinese state enterprise... This study aimed at investigating the influence of corporate governance on firm risk during the Chinese state enterprise reform. The purposes of this study are to examine the effects of board independence, state ownership and other governance variables on firm risk and to check the influence of controlling shareholder types on firm risk.Design/methodology/approachThis study uses the dynamic and static panel model to estimate the effects of board independence, state ownership and other governance factors on return volatility. To examine the influence of controlling shareholder types on corporate risk-taking, this study further used the treatment effect model (or sample selection model) to analyze the effect of private, state-owned enterprise (SOE) entity, central government and local government controls on corporate risk-taking.FindingsIt was found that the enforcement of board independence significantly increases firm risk. The strategy of decentralizing state enterprises (from central government to local government) is a good way to achieve stable stock returns.Originality valueThis study contributes to existing knowledge in several ways. First, it focused on independent directors rather than on the size of the corporate board. Second, it highlighted the impacts of state ownership and control on corporate risk. Instead of treating all types of state ownership as homogenous, SOEs are further classified into directly controlled and indirectly controlled, in line with prior studies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Emerald Publishing

Board independence, state ownership and stock return volatility during Chinese state enterprise reform

Corporate Governance , Volume 18 (2): 13 – Mar 21, 2018

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1472-0701
DOI
10.1108/cg-08-2016-0172
Publisher site
See Article on Publisher Site

Abstract

This study aimed at investigating the influence of corporate governance on firm risk during the Chinese state enterprise reform. The purposes of this study are to examine the effects of board independence, state ownership and other governance variables on firm risk and to check the influence of controlling shareholder types on firm risk.Design/methodology/approachThis study uses the dynamic and static panel model to estimate the effects of board independence, state ownership and other governance factors on return volatility. To examine the influence of controlling shareholder types on corporate risk-taking, this study further used the treatment effect model (or sample selection model) to analyze the effect of private, state-owned enterprise (SOE) entity, central government and local government controls on corporate risk-taking.FindingsIt was found that the enforcement of board independence significantly increases firm risk. The strategy of decentralizing state enterprises (from central government to local government) is a good way to achieve stable stock returns.Originality valueThis study contributes to existing knowledge in several ways. First, it focused on independent directors rather than on the size of the corporate board. Second, it highlighted the impacts of state ownership and control on corporate risk. Instead of treating all types of state ownership as homogenous, SOEs are further classified into directly controlled and indirectly controlled, in line with prior studies.

Journal

Corporate GovernanceEmerald Publishing

Published: Mar 21, 2018

Keywords: Financial performance; Corporate governance; Board of directors; Ownership

References