Social hierarchy effect of political strategy: Exploring chairman's political position influence on independent directors' dissent

Shihua Chen, Yan Ye, Khalil Jebran, David H. Zhu

Research output: Contribution to journalArticlepeer-review

Abstract

Research question/issue: Although the dark side of corporate political connections has been highlighted in recent studies, their adverse consequences on board decision making have received limited research attention. In this study, we posit that the political position of a chairman leads to greater power and a higher ranking on the board, which adversely influences the dissenting behavior of independent directors. Research findings/insights: In line with our predictions, we show that the presence of a chairman with political position will reduce the likelihood that independent directors will dissent on board proposals. Such influence is particularly weaker in firms that have higher status independent directors on boards and are state owned but stronger among firms in regulated industries and those strongly influenced by Confucian beliefs. These predictions are supported using a sample of Chinese firms from 2004 to 2016. Theoretical/academic implications: Our findings contribute to the board dynamics and decision-making literature by highlighting how the political position of a board chairman can adversely affect the decision-making quality of the whole board by reducing the propensity for independent directors to dissent. Practitioner/policy implications: The findings of this work also provide important insights to policymakers who are keen to improve corporate governance mechanisms by designing political strategies for firms.

Original languageEnglish (US)
JournalCorporate Governance: An International Review
DOIs
StateAccepted/In press - 2022

Keywords

  • China
  • corporate governance
  • independent directors' dissent
  • political position

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Strategy and Management
  • Management of Technology and Innovation

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