Independent Directors and Corporate Performance in China

Guidelines issued by the China Securities Regulatory Commission (CSRC) require companies to appoint independent directors to their boards. According to the Guidelines about Establishing an Independent Director System in Listed Companies, ever since 2002, it has been a requirement to have at least two independent directors. This rule was amended in 2003, requiring at least one third of board members to be independent. Thus, independent directors play an important part in China’s corporate governance reform.1 In western developed countries, former and current executives are the main sources of independent directors. In China, however, people of varying backgrounds, including academics and politicians, are often appointed. Since independent directors are pivotal to a firm’s governance, the main objective of this study is to explore whether the background of an independent director has any association with the performance of the firm they work for.

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