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• Working Paper | HBS Working Paper Series | 2013

  Independent Directors’ Dissent on Boards: Evidence from Listed Companies in China

  Juan Ma and Tarun Khanna

  In this paper, we examine the circumstances under which so-called “independent” directors voice their independent views on public boards in a sample of Chinese firms. First, we ask why independent directors dissent, i.e. how they justify such dissent to public investors. We find that when independent directors dissent, they tend to offer mild, subjective justifications. Overt criticism of the management team is rare. Next, we ask when an independent director is more likely to dissent and who is more likely to dissent. Controlling for firm and board characteristics, we find that independent directors’ dissent is associated with breakdown of social ties between the independent director and the board chairperson, who is at the center of the board bureaucracy in China. Dissent is more likely to occur when the chairperson who appointed the independent director has left the board. Dissent also tends to occur at the end of board “games”, defined as a 60-day window prior to departure of the board chairperson or departure of the independent director herself. The endgame effect is particularly strong, seeing 27% of the dissent issued at board “endgames” which represents only 4% of independent directors’ average tenure. While directors with foreign experience are more likely to dissent, we do not find that academics, accountants and lawyers are significantly more active in dissenting. Lastly, we show that dissent is consequential to the director and the firm. For directors, we show that dissent is significantly associated with the likelihood of exiting the director labor market. For firms, we document an economically and statistically significant cumulative abnormal return of -0.97% around announcement of dissent. Although the literature has suggested that dissent might be reflective of diverse viewpoints, and perhaps beneficial in and of itself through reduction of firm variability, we do not find this offsetting beneficial effect to be strong.

  Keywords: corporate governance; independent directors; China; China; Asia;

  Citation:

  Ma, Juan, and Tarun Khanna. "Independent Directors’ Dissent on Boards: Evidence from Listed Companies in China." Harvard Business School Working Paper, No. 13–089, April 2013. (Revised May 2013.)

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• Supplement | HBS Case Collection | 2013

  The IPO of Agricultural Bank of China Exhibits (CW)

  Aldo Musacchio

  Citation:

  Musacchio, Aldo. "The IPO of Agricultural Bank of China Exhibits (CW)." Harvard Business School Spreadsheet Supplement 713-702, March 2013.

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• Supplement | HBS Case Collection | 2013 (Revised from original 2012 version)

  Pemex (B): The Rebound?

  Aldo Musacchio, Noel Maurer and Regina Garcia-Cuellar

  Keywords: turnarounds; oil prices; energy; Energy Industry; oil companies; state-owned enterprises; corporate governance; Energy; Corporate Governance; Energy Industry; Mexico; North America;

  Citation:

  Musacchio, Aldo, Noel Maurer, and Regina Garcia-Cuellar. "Pemex (B): The Rebound?" Harvard Business School Supplement 713-052, March 2013. (Revised from original December 2012 version.)

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