Government Regulation, Corporate Board, and Firm Value: Evidence from China


  • We would like to thank the participants of the research workshop at Shanghai University of International Business and Economics, the Chinese University of Hong Kong, and Sun Yat-Sen University. All errors are our own. Yu gratefully acknowledges the financial support from the Shanghai Municipal Education Commission, Project Number: 085 and J512-01. Zheng gratefully acknowledges financial support from the National Natural Science Foundation of China (Grant No. 71002059) and from the Fundamental Research Funds for the Central Universities (Grant No. 1209130).
  • JEL classification: G32, G34, G38


This paper investigates the determinants of board composition and its consequences on firm value in China by focusing on the impact of ultimate owner type and financial needs under the institution environment with government intervention and weak investor protection. We find that State-Owned Enterprises (SOEs) are more likely to choose politically connected directors without professional backgrounds, but non-SOEs are more likely to have independent directors, or politically connected directors with professional business backgrounds. Appointment of independent directors has no effect on firm value. Due to weak legal investor protection in China, a dominant shareholder can easily remove independent directors, as there is no mature market for directors. Politically connected directors without professional business backgrounds are negatively associated with a firm's value. Although such directors can help a company establish relationships with the government, their firms may suffer due to inferior professionalism.