Using data from China’s publicly listed companies, this study investigates how firms adjust their board structure in China. We observe that between 2007 and 2013, 45% of firms changed the size or the independence of their boards during a given 2-year interval. We also find that the companies frequently adjust their board structure toward a target board structure. Based on agency theory and resource dependency theory, we have developed a novel trade-off framework between and within a board’s monitoring and advisory functions to examine the dynamic adjustment of board structure in China. The board adjustment is asymmetrically determined by both monitoring-driven adjustment and by advisory-driven adjustment. For state-owned enterprises (SOEs), a change of board independence is directed more by monitoring-driven than by advisory-driven adjustment, whereas for privately owned enterprises (POEs) such change is propelled less by monitoring-driven than by advisory-driven adjustment. For SOEs, a change in board size is influenced more by advisory-driven than by monitoring-driven adjustment, while for POEs it is affected less by advisory-driven than by monitoring-driven adjustment. The findings offer insight into the dynamic adjustment of board structure in China’s emerging economy, where companies achieve economic efficiency in response to their environment.
Board adjustment Board structure China Corporate governance POE SOE
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We thank the participants at Corporate Governance Session of the 2017 Auckland Finance Meeting in New Zealand for their helpful comments; and we acknowledge the financial support for the project of National Social Science Fund of China (for the Youth 13CGL048) and Shanghai Pujiang Programme (18PJC027).
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