Backgrounds of Independent Directors and Corporate Performance: An Empirical Study on Chinese Listed Financial Services Companies

Abstract

Independent directors are important for corporate governance and performance. This paper studies impacts of backgrounds of independent board directors on corporate performance. We used the dataset of 139 financial services companies listed in Chinese A-shares market during the years of 2004 and 2009 and conducted multi-factor regression studies. The results from financial companies are quite different from previous studies on general enterprises. We find that independent directors from academic institutions and law firms have positive effects on corporate performance, while independent directors with overseas backgrounds have negative effects, and independent directors with government backgrounds, executive experiences or retirement backgrounds have no effects on corporate performance. Shareholders and regulators need to take these industry-specific characteristics into consideration in their decision makings.