Independent Directors’
Dissent on Boards: Evidence
from Listed Companies in
China
Juan Ma
Tarun Khanna
Working Paper
13-089
October 24, 2013
Copyright © 2012, 2013 by Juan Ma and Tarun Khanna
Working papers are in draft form. This working paper is distributed for purposes of comment and
discussion only. It may not be reproduced without permission of the copyright holder. Copies of working
papers are available from the author.
Independent Directors’ Dissent on Boards:
Evidence from Listed Companies in China*
Juan Ma
Harvard Business School
Morgan 278
Boston, MA 02163
jma@hbs.edu
Tarun Khanna
Harvard Business School
Morgan 221
Boston, MA 02163
tkhanna@hbs.edu
This Draft: October 2013
*We thank Renee Adams, Ian Gow, Nan Jia, Ian Larkin, Jordan Siegel, Suraj Srinivasan, Charles Wang,
Yongxiang Wang, Yuhai Xuan, and participants at the Harvard Business School Strategy seminar for helpful
discussions and comments. We gratefully thank China Securities Regulatory Commission, Research Institute
at Shanghai Stock Exchange and Shenzhen Stock Exchange for field work support. We gratefully
acknowledge financial support from the Division of Research at the Harvard Business School. Errors remain
our own.
Copyright ©2012 by Juan Ma and Tarun Khanna
1 Abstract
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 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 dissent is significantly correlated with breakdown of social ties between the
independent director and the board chair who locates at the center of the board bureaucracy in China. Dissent is
more likely to occur when the board chair 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
chair 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 voicing dissent. Lastly, we show that dissent is consequential to
both the director and the firm. For directors, dissent significantly increases one’s likelihood of exiting the
director labor market, which translates to a more-than-10% estimated loss of annual income. 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.
2 1. Introduction
Independent directors are the first line of defense for minority shareholders. The empirical literature
however has left two important questions under-explored: (1) how do we know that independent directors are,
in fact, acting independently of management and controlling shareholders to protect the interest of minority
shareholders (Berle and Means, 1932; Fema, 1980; Fema and Jensen, 1983; Gordan 2007; Gutiérrez Urtiaga
and Sáez Lacave, 2012)?; and (2) how do we know that independent directors are, in fact, monitoring
controlling shareholders and management, or providing consultative input and guidance on key managerial
issues (Adams and Ferreira, 2007; Schwartz-Ziv and Weisbach, 2012)?
The extant literature tends to leave boards as a black box (Adams, Hermalin and Weisbach, 2010).
Researchers tend not to observe the inner dynamics of boards except when exceptional circumstances force
these into the media spotlight or into court proceedings. Mr. Warren Buffett once observed, “it was not easy to
ask difficult questions in a boardroom populated by well-mannered people who got on well (FT.com, 2009)”.
Conceptually, there is a concern that boards might evolve into a collusive equilibrium where it is not in the
interest of independent directors to rock the boat. Empirically, corporate scandals erupted into the public arena
continued to raise questions about independent directors’ ability and willingness to exercise their fiduciary
responsibilities. From the Enron scandal to the 2008 financial crisis in the U.S., and from airlines faking pilots’
credentials in China to Siemens bribing governments in Europe, there are plenty of cases suggesting that boards
may have been remiss in their fiduciary duties.
Given the obstacles in observing the internal dynamics of boards, the empirical literature has not
advanced much beyond surveying the impact of board composition on observable corporate outcomes, such as
firm performance (Yermack, 1996; Bhagat and Black, 1999; 2002; Bebchuck and Cohen, 2005; Coles, Daniel
and Naveen, 2008; ), prevention of fraud (Beasley, 1996; Klein, 2002; Uzun, Szewczyk, and Varma; 2004),
takeover gains (Byrd and Hickman 1992; Lee, Rosenstein, Rangan, and Davidson, 1992; Cotter, Shivdasani,
and Zenner, 1997), decisions on executive compensation and turnover (Weisbach, 1988; Mikkelson and Partch,
3 1997; Core, Holthausen, and Larcker, 1999; Srinivasan, 2005; Fish and Shivdasani, 2006; Faleye, 2007; Adams
and Ferreira, 2009; Karpoff, Lee and Martin, 2009)1.
The regulatory environment in China offers a rare window to observe the inner workings of independent
directors. For publicly-traded companies listed on Shanghai and Shenzhen Stock Exchange, the China
Securities Regulatory Commission (CSRC) mandates that public firms disclose independent directors’ dissent
during board meetings. The CSRC requires independent directors of a firm to issue an opinion report following
board meetings that have discussed a material corporate matter. An opinion report clearly states which
director(s) agreed, and which director(s) disagreed or abstained on a focal managerial proposal at the board
meeting. We interpret publicly-recorded dissent as especially informative, because they must be related to
issues that could not be resolved amicably by closed-door interactions between the independent director(s) and
the insiders.
In this paper, we construct a unique dataset to examine independent directors’ behaviors during board
meetings. Our results speak to what constitutes board independence in China, today’s second largest economy,
while at the same time shed light on several broader issues in the corporate finance literature. In the paper, we
ask the following questions: (1)Why does an independent director dissent, i.e. how does an independent director
justify her dissent? (2) When is an independent director more likely to dissent and who is more likely to dissent?
and (3) Does dissent matter sufficiently to affect independent director’s career and the company’s performance?
We begin with a content analysis on independent directors’ opinion reports to uncover how independent
directors justified their dissent to public investors and regulators. We show that when independent directors
dissent, they tend to offer mild, subjective justifications. Only 6% of the open dissent was explicitly justified
with firms’ poor performance. Information barriers are also evident. In one fifth of the dissenting reports,
independent directors claimed that they were not able to make a sound decision, either because they did not
receive sufficient information, or because they were not in a position to second-guess or verify information
provided by the management.
1
Please see Hermalin and Weisbach (2003) and Gordan (2007) for a comprehensive review.
4 Next, we examine the conditions under which independent directors dissent on public boards. We
conjecture that disagreement will transition into open dissent when social relationships that might hold back a
dissenter are less constraining (Berle and Means, 1932). In spite of the intricacy of a board’s social dynamics,
the Chinese leadership tradition allows us to focus our attention on the single-dimensional tie between the
independent director and the board chair who appoints the independent director for her directorship. As Bo
Yang, a prominent Chinese history commentator wrote, one of the oldest aspects of the Chinese society is the
Chinese bureaucracy, and the most salient “acquainted characteristic” of the Chinese bureaucracy is that “the
Chinese bureaucrat is loyal neither to the country, nor to the emperor, but only to the bureaucrat who hired him
for his job. Chinese dynasties might rise and fall, but the Chinese bureaucracy never changes” (p. 51, Bo Yang,
1992).
Under this view, we show that independent directors tend to “time” their dissent into circumstances when
social ties that hold back a dissenter is less constraining. First, in examining the behavior of the entire board, we
find that open dissent is significantly less likely to occur in firms where a higher proportion of independent
directors are appointed by the board chair. In examining the voting pattern of individual independent directors,
we find that a director is significantly more likely to issue an open dissent after the board chair who appointed
the director left the board. This result is consistent with the U.S. belief that CEOs co-opt boards by appointing
socially-connected and friendly directors (Hwang and Kim, 2009), and board monitoring intensity decreases as
co-option increases (Shivdasani and Yermack, 1999; Coles, Daniel and Naveen, 2010). Second, dissent is also
positively associated with termination of the board “games”, defined as a 60-day window prior to either
departure of the board chair or departure of the independent director herself from the board. The endgame effect
is particularly strong, seeing 27% of the dissent issued at the 60-window of board “endgames”, which represent
merely 4% of independent directors’ average tenure. Our “timing” results are shown to be robust to potential
endogenenity of board turnover and unobserved firm heterogeneity driven by idiosyncratic corporate culture. In
addition, we show that independent directors, trying to protect their reputations (Fema, 1980; Fema and Jensen,
1983), dissent more when firm performance suffers. Academics dissent less and directors with foreign
5 experience dissent more. Accountants and lawyers are not significantly more active, casting concern on the
notion that professionalism facilitates objective monitoring (Roe, 2004).
Combining quantitative analysis with our content analysis results, we do not find independent directors
more likely to justify their dissent with firms’ poor performance when performance suffers, suggesting that
independent directors might not be telling the whole truth while dissenting. Turning to appointer-appointee
social ties, we find that after departure of the appointing board chair, a director is more likely to dissent for
firms’ poor performance, or to justify dissent with information barriers that she has come across with the firm’s
management team.
Lastly, we investigate whether dissent matters sufficiently to affect independent directors’ career and firm
performance. For independent directors, our results are supportive of the view that the director labor market
considers not only a director’s public reputation for being a decision maker, but also the softer version of a
directors’ reputation, that is, the director’s reputation for being a friendly board member (Adams, Hermalin and
Weisbach, 2010). Dissent significantly increases a director’s likelihood of exiting the director labor market,
which translates to a more-than-10% estimated loss of annual income. For firms, we document an economically
and statistically significant average cumulative abnormal return of -0.97% around announcement of
independent directors’ dissent. Although the literature has suggested that dissent might be reflective of diverse
viewpoints, perhaps beneficial in and of itself through reducing aggressive risk taking, we do not find this
offsetting beneficial effect to be very strong.
While we have applied various procedures to tackle the endogeneity issues, our work, similar to other
recent empirical work on the internal dynamics of boards (Lin, Piotroski, Tan and Yang, 2011; Schwartz-Ziv
and Weisbach, 2012), is from a particular institutional context, and may be subject to the same inference
limitations imposed by endogeneity of board composition. However, the descriptive evidence and the
mechanisms documented in the paper are robust enough to spur further scholarship in corporate governance.
Although we also uncover evidence pointing to the alternative explanation that unobserved firm level turmoil
6 leading to both director dissent and chairperson departure, as we will show, the presence of such endogeneity
does not refute our central finding that dissent is associated with breakdown of social ties in a boardroom.
Irrespective of which hypothesis best explains independent directors’ dissent, our work suggests that there
is value to reconstructing the inner workings of boards, and reconceiving board of directors, not as a monolithic
entity that shares a common agenda (Hermalin and Weisbach, 2003), but as a social institution consisting of
individuals with different utility functions, and with emergent norms exercising sanctions and rewards to (non-)
compliance on occasion. The rest of the paper is organized as follows: Section 2 documents institutional
background. Section 3 describes data and presents content analysis results. Section 4 documents antecedents of
independent directors’ dissent. Section 5 documents consequences of dissent. Section 6 concludes.
2. Institutional Background
2.1. The Independent Director Institution in China
In 1997, in the “Guiding Opinions for Listed Companies’ Articles of Incorporation”, the China Securities
Regulatory Commission (CSRC) for the first time put forward the concept of independent directorship,
suggesting that listed companies may hire independent directors at their discretion. On August 16, 2001, the
CSRC issued the “Guiding Opinions on Establishing the Independent Director System in Listed Companies”
(hereafter the “2001 Opinion”), which formally established the independent director institution in China. The
“2001 Opinion” mandates that listed companies have a minimum of two independent directors by June 30,
2002, and have a minimum of one third of the board members comprised of independent directors by June 30,
2003, of which at least one independent director needs to be an accounting professional. The CSRC precludes
“interested persons” to serve as a firm’s independent directors: an independent director shall not be anyone who
holds more than one percent of shares, who is one of the largest ten shareholders, who holds an executive
position in the listed company, or who is a lineal or a non-lineal relative of the aforementioned controlling
shareholders or insiders.2
2
In addition, independent directors are required to have a minimum of five years’ experience in law, business or other relevant fields.
There is no restriction on gender, education and citizenship. An independent director is allowed to serve simultaneously on a
maximum of five boards.
7 According to the “2001 Opinion”, independent directors can be nominated by incumbent board members,
supervisory board members, or anyone who owns more than one percent of the company’s equity. However,
listed companies are not allowed to dismiss an independent director before the director’s pre-specified term of
office ends. In contrast to the U.S. where independent directors can be re-elected year after year, in China, to
promote board independence, one is barred from sitting on the same board after six years of service.
In the U.S. where ownership is widely dispersed, CEOs exert considerable influence over the selection
of board members (Berle and Means, 1932; Bacon and Brown, 1975; Wade, O’Reilly and Chandratat, 1990;
Crystal, 1991; Shivdasani and Yermack, 1999; Hwang and Kim, 2009; Coles, Daniel and Naveen, 2010). In
China, journalist interviews (e.g. NetEase, 2004; Shi, 2001; Long 2001) and legal scholarship (e.g. Lu, 2002;
Shen and Jia, 2004) have achieved a consensus that independent directors are selected by listed companies’
dominant shareholders. Our field visits further confirm that in China, board chairs, who best represent listed
firms’ dominant shareholder and top management (Firth, Fung, and Rui, 2006; Liao, Chen, Jing, and Sun, 2009),
handpicked nearly all of the independent directors from her own social network.
The “2001 Opinion” assigns independent directors the power to veto listed companies’ material related
party transactions, to retain independent counsel, and to hold interim board meetings or shareholders’ meetings.
Independent directors are required to issue an “opinion report” following board meetings that have discussed
major corporate events. These events include, but are not limited to, approving financial reports, hiring, firing
and compensating executives, bank financing, sales of assets, equity issuance, material related party
transactions and third-party credit guarantees. In addition to revealing votes (e.g. agree, disagree or abstain),
independent directors are also required to disclose the reasons why they have decided to issue a “non-agreement”
opinion.
2.2. A New Legal Rationale
The most salient feature of modern corporate governance is representation of shareholders by board of
directors. In institutions where ownership is widely dispersed, independent directors arise to address the freerider problem among investors, so to assure that managers are not expropriating shareholders’ wealth for
8 personal gains (Berle and Means, 1932; Jensen and Meckling, 1976; Fama and Jensen, 1983). In institutions
where ownership is highly concentrated, the free-rider problem diminishes, but independent directors arise to
counteract exploitation of minority shareholders by controlling shareholders (Shleifer and Vishny, 1986). In
China, as in many other emerging economies, ownership is concentrated. However, China’s concentrated
ownership has its unique features: concentrated ownership largely comes from the country’s commitment to
state domination of the economy, one of the legacies from the former planned economy. As of end-2010, about
70%3 of the Chinese listed companies are controlled by the state and/or large financial institutions which are in
turn controlled by the state.
State capitalism adds an additional layer to the agency problem, which is the problem that executives of
state-owned enterprises (SOEs) have concentrated control rights but no significant cash flow rights (Shleifer
and Vishny, 1997). The Communist Party has relinquished control over selecting lower-level SOE managers
and non-critical board members. But for large SOEs, the Party’s Organization Department retains the power of
hiring, firing and rotating top board members (e.g. board chair, vice chair) that overlap largely with the firm’s
top management. In China, job transfer and independent directors’ term limit serve as internal control practices
that curb factionalism by requiring SOE board members to constantly work with new board members (Huang,
2002). Exhibit 1 illustrates rotation of board chairs in China’s banking industry.
Insert Exhibit 1 Here
Chinese independent directors, in principle, shall address different agency problems depending on the
company’s ultimate ownership. In companies ultimately owned by the state, independent directors are expected
to curb SOE executives from seeking rents under the deficient institutions (Sheilfer and Vishny, 1997)4,
whereas in companies ultimately controlled by private individuals or families, independent directors are
expected to discipline controlling shareholders for the interest of minority investors (La Porta, López-de-Silanes,
Shleifer, and Vishny, 1997; 1998; 2008). As Xiangbin Yin, a Chinese independent director, described his
3
Our own calculation, according to data retrieved from the CSMAR Solution.
4
However, monitoring SOE managers is not explicitly specified as a fiduciary duty of independent directors under any laws or CSRC
rules. 9 experiences: “the State, the largest shareholder, wants him to be a ‘KGB’ in the company to ensure the integrity
of the managers; while minority shareholders expect him to be a ‘white knight’ to fight against the exploitation
from the controlling shareholder and from managers (Shen and Jia, 2005, p.233)”.
2.3. Evolution of China’s Independent Director Institution
In Table 1, Panel A documents evolution of China’s independent director institution, and Panel B
compares China with United States as of end-2010. Unlike the U.S. where independent directors comprise the
majority of a corporate board, Chinese companies have an average of one third of independent board members
from 2003, with essentially no growth through 2011. Chinese independent directors are on average 10 years
younger, and compensated about six times lower than their U.S counterparts5. While 97% of the American
independent directors hold equity, only 1% of independent directors in China own shares in the company where
they hold a board seat. Similar to the U.S. and many other countries (Catalyst, 2012), women constitute a
minority of board members in China.
In August 2001, Chinese independent directors began to express opinions on listed companies’ major
corporate events. The total number of opinion reports issued by independent directors increased dramatically in
2005, with a sizable, steady growth thereafter. Though China differs from the U.S. in many aspects,
considerable similarities are observed in terms of independent directors’ voting patterns. In the U.S., open
dissent is rarely observed by field researchers (Whisler, 1984; Mace, 1986). In China, among our collection of
opinions jointly issued by independent directors from August 2001 to June 2010, only 0.9% of the reports
contain dissenting opinions (i.e. disagreement or abstention) from individual directors.
Insert Table 1 Here
The emerging institution provides a rare opportunity for researchers to observe independent directors’
dissent, as well as the learning process of both the boards and the individual directors. However, idiosyncrasies
of the Chinese context and the fact that the independent director institution is a work in progress make it
challenging to generalize our work to other jurisdictions. Over time, both independent directors and boards
5
In fact, the10-year age gap is consistent with the respective gap in retirement age -- 55 in China and 65 in the U.S; and the
compensation gap is consistent with USD:CNY exchange rate.
10 appear to have learned how to best play the board “games”. The total number of dissenting opinions dropped
significantly after 2005. Both the boards and the independent directors may have learned that independent
directors’ public dissent is an unfavorable market signal, and have devoted increasing efforts to have potential
conflicts resolved behind closed-doors. Similar to other recent empirical work on the internal dynamics of
boards (Lin, Piotroski, Tan and Yang, 2011; Schwartz-Ziv and Weisbach, 2012), one important limitation of
our data is that we do not observe private interactions among board members.
3. Data
3.1. Data Source
We hand-coded independent directors’ voting patterns from a total of 24,212 “independent” opinion
reports issued from August 2001 to June 2010. We retrieved these reports from the China Stock Market and
Accounting Research (CSMAR) Solution Database, a leading data source for corporate governance research in
China. We define disagreement as an overt dissent, and abstention as a situation in which a director chose not to
issue an opinion. In the rest of the paper, for brevity, we refer to either disagreement or abstention as “dissent”.
Independent directors of a firm issue a joint opinion report following a board meeting that has discussed a
material corporate matter. Each joint opinion report thus contains multiple director-opinion pairs, clearly stating
which director(s) agreed and which director(s) disagreed/abstained, along with independent directors’
justification(s) for the dissenting opinion(s). An opinion report could be released as a stand-alone report, or as
the last section of the board meeting announcement. Appendix 1 displays examples of independent directors’
disagreement, abstention and agreement opinions. Independent directors’ biographic information, career
outcomes, and board turnover are hand-coded from information available from the CSMAR Solution. Financial
ratios and other control variables are accessible from the CSMAR Solution in a clean and useable format. Stock
return data are retrieved from Datastream International.
Cross-validated by two independent data coders, we identify 211 reports containing dissent from
individual directors. Scarcity of dissent is a phenomenon that has been documented in the U.S. (e.g. Whisler
(1984) and Mace (1986) in interview-based studies) and in Israel (e.g. Schwartz-Ziv and Weisbach (2012) in
11 analyses of board meeting minutes). Schwartz-Ziv and Weisbach (2012) argue that scarcity of dissent is most
consistent with the predictions of supervisory models, which begin with the assumption that the objective of the
board is to monitor insiders, as opposed to helping managers to decide the best next course of action6.
3.2. A Content Analysis on Independent Directors’ Justifications
We first perform a content analysis on independent directors’ dissenting reports7. Content analysis
utilizes a systematic, rule-based approach in dealing with qualitative materials. It has been used by SchwartzZiv and Weisbach (2012), who reconstruct the “day-to-day workings of a boardroom” (p.1) with board meeting
minutes of 11 Israeli companies. To ensure objective qualitative coding, we require data coders to code the
original texts without interpreting the latent content of the texts based on their own mental schema (Lombard,
Snyder-Dutch, and Bracken, 2004) 8. To ensure robust coding, all the dissenting opinions are coded
independently by two data coders who are native users of the Chinese language, with a 0.92 inter-coder
correlation and a 0.88 inter-coder percent agreement. Although there is no standard guideline on the appropriate
magnitude for the inter-coder robustness measure, a coefficient greater than 0.75 is generally considered
reasonable in organizational research. The final coding is agreed by both coders after reconciling the coding
discrepancies.
In Table 2, Panel A describes how we classify independent directors’ justifications into six categories,
each containing at least one subcategory. These (sub)categories are not mutually exclusive, for an independent
director might declare multiple reasons for her dissenting. Panel B displays our content analysis output. Several
observations arise from the statistics. First, despite CSRC’s stipulation that independent directors must justify
any open dissent, we did not find meaningful justifications in 13% of dissenting reports, indicating lax
6
According to Schwartz-Ziv and Weisbach (2012), examples of monitoring models include Hermalin and Weisbach (1998), Almazan
and Suarez (2003); Graziano and Luporini (2004); Raheja (2005); Dominguez-Martinez, Swank and Visser (2008), Laux and Laux
(2008), Chakraborty and Yilmaz (2010), Chemmanur and Fedaseyeu (2011); and managerial models include Song and Tankor (2006),
Adams and Ferreira (2007), Harris and Raviv (2008), Baranchuk and Dybvig (2009), Levit (2011), Malenko (2011), and Horstmeyer
and Zhu (2011).
7
As Appendix 1 illustrates, justifications for agreement opinions, if available, tend to be generic in content (e.g. the proposed action is
in accordance with applicable laws and regulations and does not infringe the interest of minority shareholders). 8
For instance, if an independent director opposed on an investment proposal, with the justification that the project may bring in
excessive risk to the company, we do not infer why she thought the project was risky, for example, whether she thought it was risky
because she had not obtained sufficient information from the management.
12 enforcement of the CSRC regulation. Second, overt criticism of management is rare. Only 6% of the dissent
was justified with firms’ poor performance. While independent directors dissent, they tend to offer mild,
subjective justifications. In 40% of the dissenting reports, independent directors declared that they had made
judgments different than the firm’s management. Third, information barriers are also evident. In 20% of the
dissenting reports independent directors claimed that they could not make a sound decision, either because they
were in no position to second guess or verify information provided by the firm, or because they did not receive
sufficient information to make judgments. Last but not least, it is logical that violation of regulations yields
overt disagreements, and independent directors’ personal issues (e.g. health issues or on vacation) are more
likely to result in abstaining from voting.
Insert Table 2 Here
3.3. Timing of Independent Directors’ Dissent
Table 3 documents timing of independent directors’ dissent. Panel A relates dissent with departure of
board chair who appointed the dissenter: 62% of dissenting opinions were issued by independent directors who
experienced departure of the appointing chair, of which 38% occurred after the chairperson departure and 24%
occurred before the chairperson departure, and only 38% were issued by dissenters who did not experience
departure of the appointing chairperson. Panel B relates dissent with termination of the board “games”. An
opinion is issued at the end of the board “game” if it is issued less than 60 days before departure of the
independent director herself, or before departure of the current board chair regardless of whether the chair
appointed the director or not. We observe a strong endgame effect: although 60 days represent only 4% of the
average tenure of independent directors9, 27% of the dissent was issued less than 60 days before the end of the
board “games”.
Insert Table 3 Here
Exhibit 2 illustrates our “timing” conjectures with a stylized case. In early 2004, four independent
directors were appointed to the board of a company listed on Shenzhen Stock Exchange. In July 2005, due to
9
Average of independent directors’ tenure is 4 years in our sample.
13 “personal and career issues”, the board chair quit his job. Soon after he stepped down, three of the four
independent directors resigned, justifying their resignations with “personal reasons”. However, for unstated
reasons, the fourth independent director decided to stay on the board. The company’s opinion reports show that
none of the four independent directors had issued an open dissent when their appointing chairperson was in
office. Following the resignation events, the board received a new chairman, who then brought in three fresh
faces to fill the board seats vacancies. Interestingly enough, when the independent directors voted on exactly the
same matters, the newly hired directors never dissented, but the one hired by the former chair dissented four
times, including once when the independent director himself was about to the board. Exhibit 2 shows the
original and translated texts of this director’s dissenting opinions, as well as characteristics of the independent
directors appeared in the case, and various observable characteristics of the firm around board chair succession.
Compared to listed companies’ median, the firm is also of smaller size, has lower financial return, higher
leverage and lower equity concentration.
Insert Exhibit 2 Here
As illustrated by the stylized case, our analyses are hampered by several data limitations. First, board
chairs often nominate independent directors under the name of the entire board. It thus appears challenging to
identify the exact nominator of an independent director based on publicly available information. In keeping with
the recent U.S. literature that focuses on social ties between CEOs and independent directors (Huang and Kim,
2009; Coles, Daniel and Naveen, 2010), we define an independent director as appointed by a board chair if she
joined the board after the chair assumed office. Second, like in the U.S., listed companies might not disclose the
whole truth regarding chairperson departure and director resignation (Bar-Hava and Segel, 2010). Third,
resignation of independent directors could give rise to an endogenous sample, in that potential dissenters are
more likely to resign from boards, and this partly explains the low frequency of dissent in our sample.
3.4. Sample and Regression Variables
In predicting when and where dissent occurs, we utilize two regression samples. Table 4 defines
variables used in the regressions. Our first regression sample contains firm-year observations of all public firms
14 listed on Shanghai and Shenzhen Stock Exchanges from 2001 to 2010. With firm-year analyses, we ask the
extent to which firms that had directors dissented are different from those in which dissent never occurred. The
outcome variable is a binary variable Dissent equal to one if a firm had at least one independent director
dissented in a given year. Under the assumption that corporate culture does not vary over the sample period, we
allow firm fixed effects to address the endogeneity concern that omitted corporate culture is driving our results.
The final sample consists of 13,657 firm-year observations.
Insert Table 4 Here
The second sample consists of director-vote observations. The outcome variable is a binary variable
Dissent equal to one if an independent director dissented (i.e. issued a disagreement or abstention opinion) in an
opinion report. Econometrically, allowing firm fixed effects in a binary dependent variable model10 implies
restricting the estimation sample to 113 firms (i.e. 10% of the total number of listed firms in 2001, and 5% of
total in 2010) where independent directors have dissented at least once over our sample period. Balanced
against this smaller sample is the ability to address the endogeneity concerns that have not been addressed in
other recent work on the internal working of boards (Lin, Piotroski, Tan and Yang, 2011; Schwartz-Ziv and
Weisbach, 2012). Conceptually, this sample selection implies that we compare dissenting situations to nondissenting situations restricted to the same firms that are less affected by firm-level unobserved heterogeneities.
Throughout the paper, we emphasize results that are robust to inclusion of fixed effects.
Table 5 compares observable firm characteristics across two groups of firms: firms that had at least one
dissent and firms that never had dissent. For all observable firm characteristics other than the SOE dummy,
within-firm, cross-year differences are shown to be at least as large as the cross-firm differences, offering little
evidence that cross-firm variations constitute stronger determinants of independent directors’ dissent than
within-firm variations. Our firm-year analyses (Table 6) provide a more rigorous proof of this claim: dissent is
not driven by differences in firm and board characteristics across firms. Rather, dissent is driven mostly by
10
That is, a conditional logit model theoretically derived to allow fixed effects for binary discrete choice model, rather than including
firm dummies that induce incidental parameters problems.
15 within-firm variation in performance, and more importantly, firm-years where independent directors are less
connected with the board chair.
Insert Table 5 Here
Our director-vote sample is constructed from a total 1,853 opinion reports (i.e. 8% of total over the
entire sample period), covering 776 independent directors (i.e. 11% of total number of independent directors at
end-2010) in firms that had at least one dissent over the sample period. As described previously, each opinion
report is jointly issued by independent directors sitting on the board of the same firm and thus contains multiple
director-opinion pairs. The final sample consists of 5,746 director-vote observations.
4. Empirical Results
4.1. Predicting Independent Directors’ Dissent: Firm-year Analyses
In firm-year analyses, we conceive a firm’s independent directors as an entirety and use two variables to
measure its connection with the board chair: (1) All Hired by Chairperson is a binary variable equal to one if all
independent directors sitting on the board are appointed by the board chair; (2) % Hired by Chairperson is a
continuous variable defined as percentage of independent directors appointed by the board chair. As the stylized
case illustrates, board composition could be associated with transition of board leadership. We therefore control
for Chairperon Transition, a binary variable indicating whether the firm experienced departure of board chair in
a given year. Ideally, one would like to compare the voting pattern of a firm’s independent directors, as an
entirety, before and after departure of its appointing chair. However, a board is not monolithic in regards to its
social tie with the chairperson. Board composition is in constant flux whereby members come and go with their
appointing leaders. Social tie is a dyadic construct which is not very meaningful unless one looks at
chairperson-director dyad within a board. We turn to dyadic ties in our director-vote analyses.
Table 6 presents results of firm-year analyses. Panel A presents summary statistics and univariate
analysis, and Panel B presents multivariate regression results. Column (1)-(4) present results of the pooled,
cross-sectional logit estimation, where the sample contains all possible firm-years. Overall, the results indicate
that dissent is not significantly correlated with firm performance. Rather, dissent is more likely to occur when
16 the board is undertaking leadership transition, and is less likely to occur when independent directors have
stronger appointer-appointee tie with the board chair.
Column (5)-(8) presents results of conditional (i.e. firm fixed effect) logit estimation, where the
regression is restricted to the subsample of firms that had at least one dissent over the sample period. Looking at
the subsample without year effects (Column (5) and (6)), dissent is significantly less likely to occur in firmyears where performance suffers and asset value shrinks. These results, together with the full sample logit
estimation results, seem to suggest that dissent is to a large extent driven by within-firm, cross-year variation in
observable firm characteristics. Dissent is occurs more when board is having a leadership transition, but the
effect vanishes when social tie variables are included in the model. Social tie variables are of the expected sign,
but become statistically insignificant when year fixed effects are included in the model (Column (7)-(8)).
Replacing the binary outcome Dissent with the total number of open dissent issued in a year, and estimating the
resulting count variable models generates qualitatively similar results. Results of Table 6 are robust to replacing
Tobin’s Q with accounting performance, and to inclusion of lagged performance in the model.
Insert Table 6 Here
4.2. Predicting Independent Directors’ Dissent: Director-Vote Analyses
4.2.1. Identification of Dyadic Social Ties
We define an independent director’s social ties with the board as any social linkages emerging from
activities other than boardroom interactions. Social ties cloud board independence by altering two primitives of
the board “game”: the strategies available to the players as well as the players in the game. First, shared
membership in a social network changes strategies available to the players of the board “games”: social ties not
only facilitate communication between a chairperson and an independent director (and thus help them to create
conflict-resolving strategies that do not exist for those who are unconnected), but also enable board to create a
social norm wherein cooperators are rewarded and defectors are socially sanctioned. In repeated games,
realization of a cooperative outcome depends on players’ expectation on whether actions will be rewarded or
punished in subsequent plays. Second, shared membership in a social network changes players in the board
17 “games”. Individuals differ in their willingness to monitor. Rational board chairs would act to place “friendly”
individuals on the board and try to keep hostile members off the board (Warther, 1998; Cohen, Frazzini and
Malloy, 2008).
Corporate finance researchers have frequently measured social ties based on observable traits, such as
common work and life experiences (Hwang and Kim, 2009; Engelberg, Gao, and Parsons, 2012). Although
being a valuable approach, it does not adequately take into account the fact that independent directors are often
socially connected to controlling shareholders through “friendship, social life ties, or even, in shared beliefs”
(Gutiérrez Urtiaga and Sáez Lacave, 2012, p.20) that are unobservable to researchers. Demonstrating a causal
effect of social relationships requires a careful account of the endogenous director selection process (the two
mechanisms discussed in the previous paragraph) as well as the reverse causality that social relationships could
be developed after an independent director is appointed11.
While it appears difficult for us to measure the second mechanism (i.e. board chair’s prior belief on
individual director’s cooperativeness), in this paper we utilize an arguably valid proxy of social tie that is
exogenous to the first mechanism (i.e. board chairs hand pick directors from their own social networks), while
at the same time addressing the reverse causality that social ties could be developed through boardroom
interactions. Our identification of social ties is derived from the complex board dynamics and the idiosyncratic
Chinese institutional context. On one hand, despite the fact that board chairs handpicked nearly all the
independent directors, CSRC’s “2001 Opinion” does not permit listed firms to eject an independent director
11
An ideal estimation of the social tie effect requires setting up an experimental protocol in which researchers randomly assign
independent directors to listed companies while at the same time blocking all off-board interactions among board members and
expecting incumbent board members’ behaviors to remain unchanged. The average treatment effect is defined as the change in the
likelihood of dissent when social ties are absent due to random assignment. However, even with randomized director assignment, it is
unlikely that researchers could successfully block all off-board interactions. It is therefore unlikely for all firms to receive the
treatment—absence of social ties. Boards can quickly develop social ties despite the fact that independent directors are randomly
assigned. Our field visits reveal that some firms know how to play the board “games” better than others. New board chairs, taking
dissent as a negative market signal, often strive to quickly develop relationships with independent directors hired by their predecessors.
This helps to explain low frequency of dissent and why we do not observe open dissent in majority of the firms. Our main estimation
sample, therefore, focuses on firms that are considered as “compliers” of the treatment, namely, firms that had independent directors
dissenting in some occasions but not in other occasions (Angrist, Imbens and Rubin, 1996).
18 before her pre-specified term of office ends. On the other hand, it is not uncommon for board chair to quit,
leaving the independent director(s) that she appointed on the board12.
In director-vote analyses, we include Chairperson Departure, a dummy variable equal to one if the
appointing chair left the board during the independent director’s tenure. This is to control for the unobserved
systematic differences between independent directors who experienced departure of the board chair and those
who did not experience it. Post Chairperson Departure is a binary variable equal to one if an opinion was
issued after departure of the appointing chair. We use this variable as a proxy for the pre-existing, unobservable
ties between an independent director and the board chair who appointed the director. To address the reserve
causality that social ties could be developed after the director was hired, we interact Post Chairperson
Departure with Days with Ex-Chair, equal to the number of days an independent director and her appointing
chair had been sitting together on the board.
4.2.2. Baseline Estimations
Table 7 presents results of director-vote analyses, where we examine the circumstances under which an
independent director is more likely to dissent. The sample contains all director-opinions issued in firms that had
at least one dissent. Panel A shows summary statistics and the univariate analysis. Panel B presents multivariate
regression results. Column (1)-(2) presents results of the pooled, cross-sectional logit estimation, and Column
(3)-(4) presents results of the conditional (firm fixed-effect) logit estimation. Overall, our results are consistent
with the view that independent directors’ dissent is associated with breakdown of social ties with the board
chair. First, independent directors who experienced the departure of the appointing chair dissent more, both
before and after board chair departure (although significant only in Column(3)), as compared to those who
never experienced departure of the appointing chair. This result points to the potential endogeneity between
director dissent and chairperson departure, as both might be caused by unobserved firm-level turmoil such as
financial and organizational problems. The difference-in-difference framework, however, allows us to partially
circumvent this endogeneity problem, by comparing individual directors’ voting patterns before and after
12 Panel A of Table 8 shows that departure of board chair could occur due to a variety of reasons, including retirement, end of term,
job transfer, resignation, dismissal, lawsuit, personal/health issues, and change of corporate control.
19 departure of the appointing chair. In the conditional logit model without year fixed effects, controlling for the
fact that an independent director has experienced chairperson departure, voting after the departure event almost
doubles the likelihood of director dissent.
The results above are consistent with the social tie hypothesis that independent directors dissent more
when pre-existing social ties break down, and also the information asymmetry explanation that directors dissent
more because they know less about the new board chair’s ability. To distinguish between the two explanations,
we include two “length” variables in our estimations. In support of the social tie hypothesis, we find that the
likelihood of dissent after departure of the appointing chair increases with number of days the director and the
appointing chair had been sitting together on the board (Post Chairperson Departure * Day with Appointing
Chair), suggesting that familiarity developed on board might be also important. The coefficient is positive,
albeit insignificant in conditional logit estimations. In contrast to this, likelihood of dissent does not
significantly decrease with the number of days the director and the current board chair had been sitting together
on the board (Days with Current Chair), providing little support for the information asymmetry explanation that
directors would dissent less when they are more informed of the chairperson’s ability. To the extent that Days
with Current Chair also captures familiarity developed via boardroom interactions, this result tends to imply
that without pre-existing ties, familiarity developed on boards does not actually results in increased cooperation
among board members.
Lastly, there is a strong “endgame” effect. In the conditional logit model without year fixed effects, voting
at the board “endgame”, either when current board chair or the director herself is leaving the board in 60 days,
is associated with a 73% increase in the odds of dissenting, and the effect is even stronger when year fixed
effects are controlled for. Under the assumption that termination of the board “game” is well-anticipated by
independent directors, this result can be interpreted as being consistent with predictions of game theoretic
models: while pre-existing social ties facilitate cooperation to a large extent, they are insufficient to sustain the
cooperative outcome in a finitely-repeated board game. However, board “endgame”, caused by either departure
20 of the board chair or departure of the independent director, is not exogenously defined, and we will turn to this
in the next subsection.
In conditional logit estimations, an independent director is significantly more likely to dissent in firms of
lower Tobin’s Q and lower book value of assets. The effect of firm performance, however, is moderate in
magnitude, as compared to the coefficients on social tie variables. In Column (3), one unit improvement in
Tobin’ Q merely decreases the odds of dissent by 22%13. Replacing Tobin’s Q with accounting performance
such as ROA or ROE, including lagged performance, replacing book value of assets with number of employees,
and using different measures of equity concentration (i.e. concentration of largest one, three, five or ten
shareholders) generate qualitatively similar results. Furthermore, as there might be unobserved factors causing a
specific director to voice dissent, we have also estimated director fixed effect models, which produce results
qualitatively similar to our baseline estimations.
Academics and engineers dissent less, and those with foreign experience dissent significantly more. We
do not find that accounting and law professionals are more likely to dissent, casting doubt on the notion that
professionalism facilitates active monitoring. No significant results are found on directors’ age or gender
(Adams and Ferreira, 2009; Masta and Miller, 2011; Ahern and Dittmar, 2012; Shwartz-Ziv, 2012). Dissent is
positively correlated with number of days the director has been on the board, pointing to the information
asymmetry hypothesis that directors dissent more as they gradually develop firm-specific knowledge.
Table 7 also reports top-subject fixed effects. The default case is any topic-subject that cannot be
classified into one of the specified top-subjects. Although most issues discussed on boards involve both
supervision and managerial consultation, following Schwartz-Ziv and Weisbach (2012), we define supervisory
issues as executive compensation, financial reporting, related party transactions, credit guarantee, audit issues,
reform of non-tradable shares, and managerial issues as executive turnover, investment and acquisition, change
in equity, financing issues and sale of assets. Independent directors are shown to dissent on both supervisory
issues and managerial issues. In particular, they are most likely to dissent on issues related to investment and
13
Regression tables that report odds ratios are available upon request.
21 acquisition, financial reports, or equity issuances, but to a lesser extent on reform of non-tradable shares,
financing issues, or related-party transactions. Although related-party transaction is where independent directors
are most needed in disciplining controlling shareholders, the result on related party transaction is in fact logical.
As independent directors are empowered by the CSRC to veto any material related party transaction, we would
expect boards to devote greater efforts to ensure that disagreements are resolved behind closed-doors.
Insert Table 7 Here
4.2.3. Chairperson Departure and Board Endgame
Table 8 further examines the implication of chairperson departure and board “endgame” on director
dissent. Panel A summarizes stated reasons for departure of board chairs from the boards. Panel B presents
regression results. Column (1) breaks down Post Chairperson Departure based on the stated reasons for
chairperson departure. First, we do not find that independent directors are significantly more likely to dissent
after job transfer of the appointing board chairs. This result can be interpreted as consistent with both the
endogeneity explanation that rotation of board chair (in most cases, by the Communist Party) is less likely to be
triggered by firms’ internal turmoil, or the social tie hypothesis that an independent director could remain wellconnected with the board after the appointing chair is rotated to another position. Independent directors,
however, are more likely to dissent after their appointing chairs ended a pre-specified term of office. If
chairperson’s term of office is strictly enforced, it can be considered as exogenous to unobserved firm-level
abnormalities and thus offering support for the social tie hypothesis. Compared to the “neutral” cases in which
appointing chairperson leaves the company due to job transfer or end of term, independent directors are more
likely to dissent when the chair leaves the company for explicitly “bad” reasons (i.e. resignation, dismissal, or
lawsuit) or for “gray” reasons (i.e. health and personal issues), which perhaps pick up both the effect of
dissolution of appointer-appointee social ties and the effect of firms’ internal turmoil. To summarize, the results
reported in Table 7 indicate that while endogeneity remains a concern, it does not refute our central point that
breakdown of social tie is associated with independent directors’ increased dissent.
22 Column (2) breaks down Endgame into two cases: whether Endgame is due to departure of board chair
or due to departure of independent director herself. While both types of Endgame are positively correlated to
dissent, only Endgame due to departure of the independent director herself is statistically significant. One
interpretation is that an independent director is well informed of when she herself is leaving the board (e.g.
when to resign or when term ends), but is less informed of when the board chair is leaving even at board
“endgames” because it is most likely be dictated by the Communist Party or the dominant shareholder. Hence if
an independent director is planning to recreate her aura of independence at board “endgames”, she is more
likely to do so when she herself is leaving the board. However, it is equally possible that an independent
director resigns, voluntarily or forced, after openly challenging the dominant shareholder who in turn dictates
the management. In Column (3), we examine an exogenous type of board endgame, defined as an independent
director approaching her six-year term limit. We find that directors reaching the term limit are in fact
significantly less likely to dissent. But we hesitate to interpret this as evidence against the “timing” conjecture,
due to the selection bias that directors whom made it to the six-year term limit might be significantly different
from those who left earlier. For those who left the board earlier, we are unable to discern whether they were
“kicked” off the board because of voicing dissent, or they intentionally “time” their dissent into board endgames
when they themselves are leaving the boards. After all, this information is kept private inside the heads of board
members.
Insert Table 8 Here
4.2.4. Matching Estimations
Chairperson departure is not a random, exogenous event. Though unobserved endogeneity remains as a
concern, one can further address the non-random nature of chairperson departure based on firm characteristics
observable to researchers. To do this, we employ a propensity score matching technique that matches
observations on the likelihood of chairperson departure in a given year. Table 9a describes propensity score
matching. In the first stage, we use firm-year observations to estimate the board chair’s likelihood to leave the
board. The results are shown in Panel A. There is a positive and statistically significant correlation between
23 board chair departure and board independence, measured as the percentage of board members being
independent directors. The underlying mechanism is not entirely clear, since we are unaware of a single case in
which independent directors have successfully removed the board chair. Till October 2012, there was only one
unsuccessful attempt that was forced into the media spotlight. In 2003, an independent director of ST Nanhua,
proposed dismissal of the board chair, after his appointing chair had left the board. The proposal was overruled
at the shareholders’ meeting.
The propensity score estimation stratifies firm-year observations into four data blocks. The balancing
property is satisfied for all predictor variables: the mean is not significantly different for treated and controls in
each data block. Panel B shows that the propensity score of chairperson departure between treated and control
are balanced in each data block14. In the second stage, we match each director-vote observation with its
corresponding firm-year propensity score of chairperson departure. As a result, each director-opinion
observation is matched into one of the four data blocks. Table 9b re-estimates the models in Table 7, by adding
block dummies to the baseline specification. Our baseline “timing” results are shown to be robust to matching.
The magnitude of coefficients on social tie variables changed minimally after propensity score matching.
Independent directors are more likely to dissent when social ties that hold back a dissenter are less constraining,
either when the appointing chair has left the board, or when the board “game” are at its last rounds.
Insert Table 9 Here
4.3. Predicting Justification for Dissent
In Table 10, we incorporate our content analysis results into the regression analyses. In particular, we
predict independent directors’ justification for dissent. We break down the outcome variable Dissent into seven
categories according to how independent directors justified the dissent. The default category is agreement,
which is associated with few meaningful justifications. Dissent contains six categories: violation of regulation,
poor performance, information issues, personal issues, different judgments, and no justification. First, we do not
find that independent directors are significantly more likely to justify their dissent with poor performance when
14
t-test statistics for mean differences between treated (i.e. firm i had chairperson departure in year t) and control (i.e. firm i did not
have chairperson departure in year t) on each predictor variable are available upon request. 24 firm valuation suffers, suggesting that directors might not be telling the whole truth while dissenting. Second,
all else constant, better-compensated independent directors are significantly less likely to justify dissent with
firms’ poor performance. Directors with foreign experience are more likely to justify their dissent with firms’
poor performance, and with the different judgments they held on the focal proposal. Consistent with the social
tie hypothesis, after departure of the appointing chairperson, independent directors are more likely to justify
their dissent with firms’ poor performance, and the information barriers they have encountered with the
management team, and this tendency increases with number of days the director and the appointing chairperson
had been sitting together on the board.
Insert Table 10 Here
5. Consequences of Dissent
5.1. Career Consequences of Dissent
Table 11 documents career consequences of dissent. There exists little prior evidence as to how director
labor market would reward or penalize dissenting directors. Dissent signals “defector” in the social game, but it
does not necessarily imply reduction in future appointments. Dissent may imply higher accountability for
minority shareholders, reflecting the independent director’s ability to detect and willingness to reveal firm’s
misconduct. In an efficient director labor market, directors performing better monitoring functions are expected
to be rewarded with additional board memberships. Our career sample covers all independent directors who
showed up in our main estimation sample. Of the 776 independent directors who showed up in our main
estimation sample, 513 directors continued to hold at least one independent directorship at the end of 2011.
Panel A provides a clear descriptive counterfactual comparison. Of the 211 opinion reports that contain dissent,
185 reports contain at least one independent director dissented but the rest of the independent director(s) chose
not to dissent. For each of such votes, we match dissenters with supporters, and document the mean difference
in career outcome across the two groups at the end of 2011. On average, dissenters are 26% less likely to stay
on the director labor market, compared to those who have voted “yes” on the same proposals. But there is no
significant difference on the average number of board seats held by the two groups of directors. Panel B
25 presents the regression results. Independent variable Dissent is a binary variable equal to one if an independent
director dissented at least once during her previous independent directorships, and Number of Dissent is defined
as the number of dissenting opinions an independent director has issued over our sample period. In Column (1)
and (2), the dependent variable is Directorshipj, 2011, a binary variable equal to one if independent director j
continued to be an independent director at end-2011, and zero otherwise. First, we show that an independent
director is significantly more likely to stay on the director labor market after sitting on the boards of larger and
better-performing firms15. In addition, likelihood of staying on the market is negatively associated with average
sitting fees received by the independent director in her previous positions, but positively correlated with the
director’s shareholding in pervious companies. Accountants, lawyers, academics and senior directors enjoy
increased likelihood of staying on the director labor market.
Overall, dissenters are less likely to continue receiving board seats. Column (1) shows that probability of
staying on the market decreases with Dissent. All else constant, having dissented at least once in previous
positions reduces probability of staying on the market by 18%. Translating into monetary terms, being a
dissenter is associated with a $1,749 (i.e. 11,020 CNY) loss of annual income16. Column (2) replaces the binary
variable Dissent with the total Number of Dissent issued by an independent director during her previous
directorships. One additional dissent reduces the probability of retaining the directorship by 14%, which
translates into $1,360 (i.e. 8,570 CNY) loss of annual income.
Seeing whether this income loss represents a meaningful cost for dissenters requires an estimate of
independent directors’ income in their primary occupations. As this cannot be readily calculated from publically
available data, we propose a benchmark against which income loss can be compared: the average salary of
supervisory board members. China has a dual board structure, with all listed companies having both board of
directors and board of supervisors. Supervisory board members perform similar monitoring roles as independent
directors, but the major difference is that supervisors are mostly insiders of the listed company. Salary of a
15
Although Tobin’Q is statistically insignificant in Colum (1) and (2), untabulated regressions show that accounting performance is
positively correlated with the likelihood of retaining the independent directorship, and the effect is statistically significant at 5% level.
16
The average independent director compensation in 2011 is $9717.
26 supervisory board member disclosed in the proxy statement can be therefore considered as income from her
primary occupation. In 2011 average salary of supervisory board members is $12, 227 (i.e. 76,853 CNY). That
being said, having dissented at least once is associated with 11-14% estimated loss of annual income for
independent directors. These calculations suggest that in addition to potential non-monetary costs associated
with loss of prestige, reputation and social network (Fich and Shivdasani, 2007), independent directors also
suffer a non-trivial monetary loss from voicing dissent.
Column (3) and (4) re-estimate the specifications in Column (1) and (2), but replace the outcome
variable with total number of Board Seats held by an independent director. We do not find that Dissent or
Number of Dissent is significantly associated with the total number of board seats received subsequently by an
independent director. Qualitative similar results are obtained when we allow the outcome variable to be righthand censored by the maximum of independent board seats held by an individual director, or when we restrict
our sample to independent directors remaining on the director labor market at end-2011. Taking together, our
results suggest that dissent matters sufficiently to induce a binary change to career, leading to independent
directors exiting the director labor market. Although prior literature would recommend interpreting these results
as the director labor market imposes penalties on hostile board members (Adams, Hermalin and Weisbach,
2010), we add an additional word of caution here. Dissent is significantly associated with the likelihood of
exiting the labor market, but has no marginal effect on the number of board seats received by a director once
she managed to stay on the market. It could also be the result of directors voluntarily opting out of the director
market following dissenting, even absent of penalties from the director labor market.
Insert Table 11 Here
5.2. Dissent and Performance Variability
Dissent reflects heterogeneous viewpoints held by board members, and heterogeneous boards are believed
to be less likely to accept aggressive projects due to the greater difficulty in reaching an agreement on these
projects (Sah and Stiglitz, 1986; 1981). In Table 12, we document the relationship between independent
directors’ dissent and the target firm’s performance variability. Panel A provides the descriptive statistics. Firms
27 that never had dissent are associated with higher within-firm, cross-year dispersion (Cheng, 2008) in ROA but
lower dispersion in Tobin’s Q. In neither case is the cross-group difference significantly different from zero.
Panel B predicts firms’ performance variability with independent directors’ dissent, using firm-year
observations. The panel includes all Chinese listed firms from 2001 to 2010. The outcome variable is
performance variability | Ɛit |, defined as the absolute deviation from expected performance (Sanders and
Hambrick, 2007; Nakano and Nguyen, 2012). Dissentit is a binary variable equal to one if firm i has at least one
independent director dissenting in year t. We show that independent directors’ dissent has a mild predictive
power on performance variability. Consistent with our conjecture, dissent is negatively related to current and
subsequent year’s performance variability. However the effects are statistically insignificant when industry
fixed effects are included in the model. Also note that we do not find that the relationship between board size
and performance variability documented in the developed world (Cheng 2008; Nakano and Nguyen, 2012) is
generalizable to China, due perhaps to a higher degree of board homogeneity or cultural conformity. A better
interpretation of such results awaits future research that investigates board decision-making from a comparative
perspective.
Insert Table 12 Here
5.3. Stock Market Reaction to Independent Directors’ Dissent
Lastly, it is natural to ask whether the stock market reacts to independent directors’ dissent. To the
extent that independent directors’ dissent is a credible signal of future deterioration in firm performance (Lin,
Piotroski, Tan and Yang, 2011), we expect the market to react unfavorably to dissent of independent directors.
Exhibit 3 plots equally weighted average abnormal returns (ARs) and cumulative abnormal returns (CARs) over
[-15, 15] event window surrounding announcement of independent directors’ dissent (i.e. Day 0). Daily
abnormal returns are calculated as deviations from expected returns estimated from the CAMP model over the
[-120, -31] estimation window. Equally weighted across all dissenting events, the average abnormal return is -
28 0.43% upon announcement of independent directors’ dissent, with z-score equal to 1.9217. Table 13 reports
average ARs and CARs for the [-15, 15] event window.
Insert Exhibit 3 and Table 13 Here
We emphasize that the announcement day market reactions might not be an unbiased estimate of the
expected costs of independent directors’ dissent. First, we are silent on the information content of individual
dissenting events. Boards may announce voting outcomes a few days after board meetings. Consistent with this,
equally weighted CAR over the [-2, 2] event window is -0.97%, significantly different from zero at 5% level.
Second, dissent contains information other than the dissent itself. In particular, each dissenting event is
contaminated by the actual content of the corporate matter disagreed by independent director(s). The CAR plots
shows that to some extent the market gradually learned about the forthcoming events. The average CAR
gradually drifts down from day -7 to day -1, followed by further decrease in two days after event announcement.
It is difficult for the market to predict whether an individual director is going to issue a dissent. The CAR plot is
thus consistent with the alternative story of underlying misconducts that simultaneously leading to director
dissent and the negative stock market reactions. Due to the inability to discern the extent to which the market
was reacting to the dissent itself, or to the misconduct independent directors were dissenting on, we cannot take
comfort that the negative market reaction is attributed solely to independent directors’ dissent. Nevertheless, our
results at least rule out the idea that open dissent is rewarded by the market.
To sum up, both the director labor market and the stock market react unfavorably to independent directors’
open dissent. Although the literature has suggested that dissent might be reflective of diverse viewpoints,
perhaps beneficial in and of itself through reducing variability of firm performance, we do not find this
offsetting beneficial effect to be particularly strong. It therefore appears appealing to question why some
independent directors would issue open dissent that is potentially detrimental to their careers, and why some
firms would allow dissent to spill into the public that is potentially detrimental to their stock returns. One
17
Since there are issues with using conventional event study in emerging economies (e.g. Morck, Yeung and Yu, 2000), for robustness,
we checked recent literature on stock market reaction to unfavorable corporate events in China. As it turns out, earlier literature has
found similar magnitudes. For instance, Chen, Ganesan and Lin (2009) find a -0.59% average AR upon announcement of proactive
product recalls, and Sun and Zhang (2006) document a -1.4% average three-day CAR upon revelation of managerial fraud.
29 possible explanation is that the Chinese institution is work-in-progress. Over time both independent directors
and boards have learned that open dissent is an unfavorable market signal, and have made increasing efforts to
ensure potential conflicts be resolved behind closed-doors. In fact, we do observe that dissent reduces over time
as the Chinese independent director institution gradually establishes. Hence our evidence is best interpreted as
out-of-equilibrium outcome reflecting the learning process of both the Chinese boards and the individual
directors.
6. Conclusion
Independent directors are an integral part of corporate governance. Despite the copious scholarly debates
surrounding board independence, little progress has been made in studying the inner workings of public boards.
Taking China as an empirical site, this paper offers one of the first statistical investigations of the circumstances
under which so-called “independent” directors voice their independent views. Unlike most of the previous
models that view boards as a monolithic entity that “shares a common agenda on all matters” (Hermalin and
Weisbach, 2003, p. 14), our data allow us to see boards as consisting of individuals with different utility
functions and to examine board behaviors at the individual director level. We view this as the first step in a long
research journey.
Although we cannot observe all expressions of board independence, we show that independent directors
dissent more when social connections that might hold back a dissent is less constraining on one hand (Berle and
Means, 1932), and when firms have poor performance that might impose threats to independent directors’
personal reputations on the other hand (Fama 1980; Fama and Jensen, 1983). Our work suggests that there is
value to reconceiving boards, not as monolithic checks on managerial actions (e.g. Uzun, Szewczyk, and Varma;
2004; Klein, 2002; Bhagat and Black, 1999; 2002; Cotter, Shivdasani, and Zenner, 1997; Beasley, 1996), as
suggested by the stylized principal-agent models18, but as social institutions with emergent norms, and sanctions
and rewards to (non-)compliance on occasion. Our findings suggest that the labor market not only rewards
independent directors for their superior decision making expertise (Fama and Jensen, 1983), but might also
18
Yet formal modeling of boards as an equilibrium solution to the agency problems is quite limited.
30 punish those who have openly challenged listed companies’ management teams (Adams, Hermalin and
Weisbach, 2010).
This paper has many limitations, which highlight further trajectories for empirical research. First, the
idiosyncratic institutional context has nontrivial implications on the internal dynamics of corporate boards. In
SOEs, independent directors have to play a “game” within a “game”. The smaller game is within a particular
board, and the larger game takes into account that board chairs are regularly rotated to another board by the
Party, or that independent directors have to leave the boards after six years. In this paper we confine our
analyses to the smaller game in which board members are required to reveal dissent within a particular board.
In future work, we will examine the larger board games that take into account that board members are regularly
rotated between boards. Second, idiosyncrasies of the Chinese institutional context make extrapolation to other
contexts challenging. We conjecture that China provides a lower bound for independent directors’ dissent. Due
to the legal necessity that dissent needs to be revealed, Chinese boards probably devote more efforts to resolve
conflicts with independent directors. In addition, China’s independent director institution is at its early stage.
Both boards and independent directors have gradually learned how to play the board “games”. A fascinating
research avenue is to examine independent directors’ voting patterns in a wide range of institutional settings, in
particular, in advanced institutions where disclosure of dissent is not mandatory. Third, we confine our analyses
to the independent director--board chair dyad, in keeping with the Chinese leadership tradition and the rest of
the recent literature on social relationships among board members (Hwang and Kim, 2009; Coles, Daniel and
Naveen, 2010). To gain further insights on the strategic interactions within boards, future research might want
to consider a higher-level social connection structure, for instance, a structure that takes into account social
influence and multisided social connections within public boards. Of course, this is harder to operationalize.
Last but not least, we expect that in the near future empirical studies on internal workings of boards will move
beyond surveying public companies, of particular importance are startups and nonprofit organizations.
Both China’s independent director institution and the empirical work on boards’ inner workings are in
development. Nonetheless, our findings have several implications to policy makers and independent directors in
31 the transitioning stage. For Chinese policy makers, we confirm the idea that board actions are influenced by the
board selection process to a great extent (Berle and Means, 1932). For Chinese independent directors, our work
suggests an inescapable dilemma whereby the Confucian doctrine of Golden Mean is the only survival guide,
that is, independent directors must ensure that their relationships with listed companies are conducted on an
open and mutually advantageous basis. On one hand, independent directors need to build a good public
reputation for being an active monitor, and on the other hand, they need to establish a good “private” reputation
for being friendly with the controlling shareholders and top management.
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36 Table 1. Independent Directors in China
Panel A documents evolution of China’s independent director institution. The sample covers companies listed on Shanghai and Shenzhen Stock Exchange, from 1999-2011. Panel
B compares independent directors in China versus in U.S. as of end-2010. Data on Chinese listed companies are retrieved from CSMAR Solution’s Corporate Governance Research
Series. U.S. independent director data are retrieved from RiskMetrics Directors and BoardEx.# CSMAR Solution’s independent opinion data series terminates on June 30, 2010; *1
Chinese Yuan=0.16 USD as of 10/5/2012; **Annual retainer fee only, not including committee fees, bonus, and meeting fees.
Panel A. Evolution of China’s Independent Director Institution
Year
Total Number of
Independent
Listed
Directors
Firms
%Independent Directors
Mean
Median
Min
Max
Mean Age
% Graduate
Degree
1999
83
949
1%
0
0%
44%
51
51
6%
45%
2000
199
1,108
2%
0
0%
73%
52
49
3%
33%
2001
711
1,163
6%
0
0%
56%
51
49
7%
50%
2002
2804
1,229
24%
22%
0%
67%
49
47
10%
79%
2003
4112
1,288
33%
33%
0%
75%
49
48
11%
59%
2004
4529
1,378
34%
33%
0%
67%
50
48
11%
61%
2005
4530
1,375
35%
33%
8%
60%
51
49
11%
61%
2006
4757
1,456
35%
33%
11%
60%
51
50
12%
63%
2007
5141
1,572
36%
33%
11%
67%
52
50
12%
63%
2008
5244
1,626
36%
33%
14%
67%
52
50
12%
65%
2009
5817
1,774
36%
33%
9%
71%
52
50
13%
66%
2010
6938
2,129
37%
33%
13%
80%
53
50
14%
65%
2011
7708
2,363
37%
33%
20%
75%
53
50
14%
66%
Meeting
Attendance
Compensation
Year
% With
Compensation
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
8%
8%
36%
72%
83%
95%
95%
93%
94%
94%
Mean
Compensation
(in USD*)
411
257
1,785
3,642
4,540
5,867
6,205
6,211
7,203
8,086
Median
Compensation
(in USD*)
0
0
0
3,182
4,773
4,773
5,600
5,728
6,364
6,415
% With
Shareholding
Mean
2%
2%
2%
1%
2%
1%
2%
2%
2%
1%
Median
Opinions
Total
Opinions
Issued
Dissent
(Disagreement or
Abstention)
%
Dissent
7
173
91
161
3388
3655
3451
4443
0
0
0
0
32
103
27
9
0.00%
0.00%
0.00%
0.00%
0.94%
2.82%
0.78%
0.20%
7
7
7
8
8
37 Background
Median
Age
% Female
6
6
7
8
8
2009
2010
2011
93%
95%
95%
8,762
9,141
9,717
7,955
7,955
7,955
1%
1%
1%
7
8
8
Panel B. Independent Directors: China versus U.S. as of end-2010
% Independent Directors
Avg. Age
Proportion of Female
Avg. Annual Compensation
Proportion with Shareholding
Avg. Board Meetings
China
United States
37%
79%
53
63
14%
12%
$9,141
$78,017**
1%
97%
8
8
38 7
7
8
4579
4265#
10
30
0.22%
0.70%
Table 2. Justification for Dissent
This table documents independent directors’ justification for open dissent. We retrieved a total of 24,212 opinion reports issued by independent directors from August 2001 to June
2010. Cross-validated by two independent data coders, we identify 211 reports containing dissent (disagreement or abstention) from individual directors. Panel A describes our
content analysis codebook, i.e. how we classify an independent directors’ justification(s) for dissent into one of six major categories: violation of regulation, poor performance,
information barrier, personal issue, different judgment and no justification. Each category contains at least one subcategory (bold). We also list examples of independent directors’
justifications under each subcategory. These (sub)categories are not mutually exclusive, because an independent director might declare multiple reasons for her dissenting.
Panel A. Content Analysis on Independent Directors’ Justifications: System of Categories
Justification for Dissent
Dissent
Violation of Regulation
Poor Performance
Information Barrier
Personal Issue
Different Judgment
Disagreement
(Chinese
Characters: 反
对，提出异议
，保留意见)
Conflict of interest
conducts
i. Related party
transaction or third-party
credit guarantee that
harm minority
shareholders
ii. Other illicit or
conflict of interest
conducts
Financial distress
i. Low financial
return
ii. Risk of de-listing
iii. Cash flow
problems
Insufficient
information
i. Firm provides
insufficient
information for
independent
directors to make
judgments
ii. Firm provides
insufficient
justifications for
proposed actions
Insufficient
knowledge
i. Independent
directors lack firmspecific knowledge
or relevant
professional
knowledge to make
judgments
Independent director
has different
judgments on actions
proposed by firm
i. Risky project/action
ii. Low return project
iii. Project harms firm’s
long term growth
iv. Disagree with firm's
justifications
v. Firm does not have
resources needed for
executing proposed
actions
Problematic voting
procedure
i. Independent directors
not informed of voting or
given enough time to
review proposal
ii. Minor managerial
issues not to be decided
by board
iii. Board not presented
with options
Poor management
i. Ineffective or
insufficient
managerial efforts
ii. Firm failed to
correct wrongdoings
Inability to verify
information
provided by firm
Other personal
issues
i. Health Issues
ii. Travelling
iii. Plan to resign
OR
Abstention
(Chinese
Characters: 弃
权， 无法发表
意见，无法判
断)
39 No
Justification
Panel B. Independent Directors’ Justification for Dissent
Panel B displays content analysis output. The sample covers 211 reports in which at least one independent director dissented i.e.
issued a disagreement or abstention opinion. Of the 211 dissenting reports, 111 contain only disagreement (i.e. at least one
independent director disagreed and no one abstained), 92 contain only abstention (i.e. at least one independent director voted
abstention and no one disagreed) and 8 contain both disagreement and abstention (i.e. at least one director disagreed and at least one
other director abstained).*Total might be less than the sum of subcategories, for a dissenting report might contain multiple
justifications.** Total might be less than the sum of violation of regulation, poor performance, , information issue, personal issue,
different judgment, and no justifications, for a dissenting opinion might contain multiple justifications.
Dissent
Justification
Disagreement
Violation of Regulation*
Conflict of Interest
Problematic Voting Procedure
Poor Performance*
Financial distress
Poor management
Information Issues*
Insufficient information
Inability to verify information provided by management
Personal Issue*
Insufficient knowledge
Other personal issues
Different Judgment*
40
22
18
5
3
2
19
16
2
7
6
1
60
14
5
9
9
3
6
24
19
5
13
8
5
26
No Justification*
14
12
119
100
Total**
40 Abstention
Table 3. Timing of Independent Directors’ Dissent
This table documents “timing” of independent directors’ dissent. The sample covers 312 director-dissent pairs identified from the 211
dissenting reports described in Table 2. Panel A relates dissent with departure of board chair who appointed the dissenter: 62% of
dissenting opinions were issued by independent directors who experienced departure of appointing chairperson, of which 38%
occurred after chairperson departure and 24% occurred before chairperson departure, and only 38% were issued by dissenters who did
not experience departure of appointing chairperson. Panel B relates independent directors’ dissent with termination of the board
“games”. An opinion is issued at the end of the board “game” if it is issued less than 60 days before departure of the independent
director herself, or before departure of the current chairperson, regardless whether the chairperson appointed the independent director
or not. On average, independent directors in our sample sit on a board for 4 years. There is a strong endgame effect: although 60 days
represent only 4% of the average tenure of the independent directors, 27% of the dissent was issued less than 60 days before the end of
the board “games”.
Panel A: Dissent and Chairperson Departure
Before chairperson departure
After chairperson departure
Total
Panel B: Dissent and End of the Board "Game"
Departure of chairperson only
Departure of independent director only
Departure of both chairperson and
independent director
Total
Experienced departure of the appointing chairperson?
Yes
No
24%
38%
62%
38%
Issued at board “endgame”?
Yes
No
(4% of the Avg. Tenure)
(96% of the Avg. Tenure)
9%
10%
8%
27%
41 73%
Table 4. Definition of Variables
This table defines variables used in regressions. i indexes firm, j indexes independent director, t indexes year, and k indexes opinion
report.
Variable
Dependent Variables
Dissentit
Dissentijt
Independent Variables
Tobin’s Qit
Debt/Equityit
Assetit
Equity Concentration(top 10)it
SOEit
Board Sizeit
% Independent Directorsit
Chairperson-CEO dualityit
Chairperson Transitionit
All Hired by Chairpersonit
% Hired by Chairpersonit
Accountingij
Lawij
Academicij
Bureaucratij
Foreign Experienceij
Engineerij
Maleij
Ageijt
Compensationijt
Days on Boardijtd
Number of Sharesijt
Chairperson Departureijtk
Post Chairperson Departureijtk
Days with Current Chairijtk
Endgameijtk
Executive Turnoverijtk
Executive Compensationijtk
Financial Reportijtk
Definition
A binary variable equal to one if firm i had at least one independent director dissented (i.e.
issued a disagreement or abstention opinion) at year t, zero otherwise.
A binary variable equal to one if an independent director j serving on the board of firm i
dissented (i.e. issued a disagreement or abstention opinion) in opinion report k at year t, zero
otherwise.
The ratio of firm i’s market value to book value of assets at year t.
Debt-to-equity ratio of firm i at year t, defined as total liability dived by total equity.
Total book value of assets of firm i at year t.
Herfindahl index of equity concentration, defined by squared sum of top 10 shareholders’
percent shareholding.
A binary variable equal to one if firm i a state-owned enterprise at year t.
Total number of board members of firm i at year t.
Number of independent directors divided by total number of board members.
A dummy variable equal to one if board chair is also the CEO, zero otherwise.
A binary variable equal to one if firm i experiences board chair succession at year t, zero
otherwise.
A binary variable equal to one if all independent directors of firm i are hired by current board
chair at year t.
Percentage of independent directors of firm i hired by current board chair at year t.
A binary variable equal to one if independent director j in firm i is/was an accountant, treasurer,
or accounting professor, zero otherwise.
A binary variable equal to one if independent director j is/was a law professional, zero
otherwise.
A binary variable equal to one if independent director j is/was a professor, or researcher at a
research institute, zero otherwise.
A binary variable equal to one if independent director j is/was a government official, zero
otherwise.
A binary variable equal to one if independent director j has foreign work or study experience,
zero otherwise.
A binary variable equal to one if independent director j is/was an engineer, zero otherwise.
A binary variable equal to one if independent director j is a male, zero otherwise.
Age of independent director i in year t.
Total sitting fee plus allowance in Chinese Yuan.
Number of days the independent director i has been sitting on the board when opinion k is
issued.
Total number of firm i’s shares independent director j holds at year t.
A binary variable equal to one if independent directors j’s appointing chairperson left the board
during an independent director j’s tenure, zero otherwise.
A binary variable equal to one if opinion k is issued after independent director j’s appointing
chairperson left the board, zero otherwise.
Number of days the independent director j and the current chairperson has been sitting together
on the board when the opinion k is issued.
A binary variable equal to one if either the chairperson or the director is leaving the board in
less than 60 days when opinion k is issued, zero otherwise.
A binary variable equal to one if independent director j issued opinion on firm i’s executive
turnover issues in opinion k, zero otherwise.
A binary variable equal to one if independent director j issued opinion on firm i’s executive
compensation issues in opinion k, zero otherwise.
A binary variable equal to one if independent director j issued opinion on firm i’s financial
reports in opinion k, zero otherwise.
42 Related Party Transactionijtk
Credit Guaranteeijtk
Investment and Acquisitionijtk
Auditingijtk
Change in Equityijtk
Financingijtk
Sale of Assetsijtk
Reform in Non-tradable
Sharesijtk
A binary variable equal to one if independent director j issued opinion on firm i’s related party
transactions in opinion k, zero otherwise.
A binary variable equal to one if independent director j issued opinion on firm i’s credit
guarantee transactions in opinion k, zero otherwise.
A binary variable equal to one if independent director j issued opinion on firm i’s investment
and acquisition issues in opinion k, zero otherwise.
A binary variable equal to one if independent director j issued opinion on firm i’s auditing
issues in opinion k, zero otherwise.
A binary variable equal to one if independent director j issued opinion concerning change in
equity of firm i in opinion k, zero otherwise.
A binary variable equal to one if independent director j issued opinion on firm i’s financing
issues in opinion k, zero otherwise.
A binary variable equal to one if independent director j issued opinion concerning change in
equity of firm i in opinion k, zero otherwise.
A binary variable equal to one if independent director j issued opinion on reform of nontradable shares in opinion k, zero otherwise.
Table 5. Dissent and Firm Characteristics: within group and across group comparisons
This table compares selected observable firm characteristics across two groups of firms: firm that had at least one dissent and firms
that never had dissent over the sample period. The sample contains all listed companies in China, from 2001 to 2010. *F-Statistic for
variable X is obtained by regressing variable Xit on a dummy variable nondissentfirmi indicating firm i never had dissent over the
sample period, and a dummy variable dissentyearit indicating a firm i had at least one dissent at year t:
Xit = β0+ β1 nondissentfirmi + β2 dissentyearit + eit,, with standard error clustered at firm.
The null hypothesis for F-test is that |β1| = |β2|, meaning that the within-group variation on variable X is as least as at large as the
cross-group variation.
Assets
Equity
Tobin's
ROA
Debt/Equity
SOE
(Billions
Employees
Concentration
Q
of CNY)
(top 10)
3.81
0.00
0.81
0.69
52
4350
0.18
Firms had at least one dissent
At years with dissent
1.87
-0.02
0.76
0.57
65
4920
0.16
At years without dissent
4.11
0.01
0.82
0.70
50
4265
0.18
Firms never had dissent
F-Statistic*
Prob.>F-Statistic
3.97
0.44
0.5077
0.03
0.1
0.7559
0.67
0.63
0.4278
0.69
11.8
0.0006
17
0.39
0.5308
4537
1.24
0.2658
0.2
0.17
0.6816
43 Table 6. Predicting Independent Directors’ Dissent – Firm-Year Analyses
This table represents results from estimating the following logit model:
Dissentit = β0 + β1 Tobin’s Qit + β2Debt/Equityit + β3 ln(Assets)it + β4 Equity Concentrationit + β5 SOEit it + β6 Board Sizeit+ β7 % Independent Directorsit + β8
Chairperson-CEO Dualityit + β9 Chairperson Transitionit β10 Ties with Chairpersonit + Ɛit
Where the dependent variable is Dissentit, a binary variable equal to one if the firm i had at least one director dissented (i.e. issued a disagreement or abstention opinion) in year t,
where t=2001-2010. Chairperon Transitionit is a binary variable indicating whether firm i experienced turnover of board chair in year t. We use two variables to measure
independent directors’ ties with the board chair: (1) All Hired by Chairperson is a binary variable equal to one if all independent directors are appointed by the current board chair;
(2) % Hired by Chairperson is defined as percentage of independent directors appointed by the current chairperson. If firm experiences chairperson transition in a year, we
consider the new chair as the current board chair at year t. Results are robust to considering the old chair the current board chair. Panel A presents summary statistics and univariate
analysis. * denotes significance at 5% level. In Panel B, Column (1)-(4) present results of the pooled, cross-sectional logit estimation, where the sample contains all possible firmyears, i.e. firms that never had dissent and 113 firms that had at least one dissent from August 2001 to June 2010. Column (5)-(8) presents results of conditional (firm fixed effect)
logit estimation, where the sample is restricted to firms that had at least one dissent. Replacing the dummy variable Dissentit with the total number of dissent firm i had at year t,
and estimating count variable models generate qualitatively similar results. Standard errors are clustered at firm. |z| statistics are reported in parentheses. * denotes significance at
10% level, ** denotes significance at 5% level, and *** denotes significance at 1% level.
Panel A. Summary Statistics and Univariate Analyses
Variable
Dissent
Tobin's Q
Debt/Equity
ln (Assets)
Equity Concentration (Top 10)
SOE
Board Size
% Independent Directors
Chairperson-CEO Duality
Chairperson Transition
All hired by Chairperson
% Hired by Chairperson
Obs
14994
14787
14994
14994
14994
14994
14831
14829
14868
14994
14148
14148
Mean
0.009
3.958
0.685
21.354
0.200
0.689
9.430
0.322
0.149
0.248
0.555
0.637
Summary Statistics
10
Std. Dev.
Percentile
0.096
0
155.693
0.958
7.599
0.213
1.316
20.028
0.138
0.053
0.463
0
2.160
7
0.102
0.2
0.356
0
0.432
0
0.497
0
0.439
0
90
Percentile
0
2.728
0.767
22.858
0.399
1
12
0.429
1
1
1
1
44 Dissent
1.00
0.00
0.00
-0.01
-0.0269*
-0.0251*
0.01
0.0251*
0.00
0.0218*
-0.0535*
-0.0499*
Univariate Analysis
Chairperson
All hired by
Transition
Chairperson
0.0218*
-0.0535*
0.00
-0.0167*
0.02
-0.0247*
-0.1022*
0.0305*
0.0455*
0.0254*
-0.0441*
-0.0665*
-0.0433*
0.0326*
-0.01
-0.0773*
0.0542*
0.0597*
1.00
-0.2355*
-0.2355*
1.00
-0.3339*
0.9233*
% Hired by
Chairperson
-0.0499*
-0.01
-0.0244*
0.0444*
0.01
-0.0673*
0.0531*
-0.0447*
0.0401*
-0.3339*
0.9233*
1.00
Panel B. Multivariate Analyses
Tobin’s Q
Debt/Equity
ln (Assets)
Equity Concentration (top 10)
SOE
Board Size
% Independent Directors
Chairperson-CEO Duality
Chairperson Transition
All Hired by Chairperson
(1)
-0.026
(0.75)
0.024
(1.18)
-0.079
(0.84)
-1.629**
(2.02)
-0.400*
(1.70)
0.106**
(2.35)
1.800
(1.12)
0.040
(0.16)
0.309*
(1.71)
-1.005***
(4.85)
% Hired by Chairperson
Year Dummies
Observations
Prob. > Chi2
No
13657
0.0000
Logit
(2)
-0.026
(0.76)
0.028
(1.37)
-0.083
(0.88)
-1.665**
(2.08)
-0.398*
(1.70)
0.114**
(2.52)
2.123
(1.35)
0.013
(0.05)
0.186
(0.99)
-1.055***
(5.06)
No
13657
0.0000
(3)
-0.009
(0.81)
0.014
(0.61)
-0.090
(0.94)
-0.960
(1.14)
-0.328
(1.42)
0.103**
(2.03)
-2.405
(0.87)
0.107
(0.41)
0.480***
(2.64)
-0.738***
(3.49)
Yes
9505
0.0000
(4)
-0.010
(0.85)
0.015
(0.66)
-0.096
(1.00)
-1.010
(1.19)
-0.315
(1.38)
0.106**
(2.09)
-2.218
(0.81)
0.088
(0.34)
0.414**
(2.19)
(5)
-0.135**
(2.57)
0.275
(1.16)
-0.628**
(2.46)
-3.404*
(1.72)
-0.826*
(1.72)
-0.005
(0.07)
2.822
(1.47)
0.142
(0.37)
0.102
(0.45)
-0.798***
(2.76)
-0.706***
(3.30)
Yes
9505
0.0000
No
997
0.0000
45 Conditional Logit
(6)
(7)
-0.138***
-0.073
(2.64)
(1.64)
0.284
0.251
(1.20)
(1.40)
-0.623**
-0.413
(2.43)
(1.25)
-3.194
3.262
(1.60)
(1.10)
-0.905*
0.077
(1.89)
(0.10)
-0.000
-0.015
(0.00)
(0.16)
3.120
-1.172
(1.63)
(0.40)
0.157
0.254
(0.41)
(0.56)
-0.046
0.148
(0.19)
(0.55)
-0.102
(0.28)
-0.929***
(2.97)
No
Yes
997
997
0.0000
0.0000
(8)
-0.075*
(1.67)
0.259
(1.42)
-0.420
(1.27)
3.382
(1.14)
0.090
(0.12)
-0.008
(0.09)
-1.077
(0.37)
0.256
(0.56)
0.081
(0.28)
-0.293
(0.72)
Yes
997
0.0000
Table 7. Predicting Independent Directors’ Dissent: Director-Vote Analyses
This table represents results from estimating the following logit model:
Dissentiitk= β0 + β1Tobin’s Qit + β2Debt/Equityit + β3 ln(Asset)it + β4 Equity Concentrationit + β5 SOEit + β6 Board Sizeit + β7 %
Independent Directorsit + β8 Chairperson-CEO Duality+ β9 Accountingij + β10 Lawij + β11Academicij + β12 Bureaucratij + β13
Foreign Experienceij+ β14 Engineerij + β15 Maleij + β16 ln (Age)ijt+ β17ln (Compensation+1)ijt +β18 ln(Days on Board+1)ijtd +
β19 ln(Number of Shares+1)ijt + β20 Chairperson Departureijtk+ β21 Post Chairperson Departureijtk + β22 Post Chairperson
Departureijtk ×ln (Days with Ex-chair +1)ijtk+ β23 ln(Days with Current Chair)ijtk + β24 Endgameijtk + Ɛijtk
Where i indexes firm, j indexes independent director, t indexes year, and k indexes opinion. The dependent variable is Dissentijkt, a
binary variable equal to one if an independent director j serving on the board of firm i dissented (i.e. issued a disagreement or
abstention opinion) at date d in year t. Sample contains all director-opinions issued in firms that had at least one director dissented
from August 2001 to June 2010. Panel A presents summary statistics and univariate analysis. * denotes significance at 5% level.
Panel B presents multivariate regression results. Column (1)-(2) presents results of pooled, cross-sectional logit estimation, and
Column (3)-(4) presents results of conditional logit estimation. Standard errors are clustered at firm. |z| statistics are reported in
parentheses. * denotes significance at 10% level, ** denotes significance at 5% level, and *** denotes significance at 1% level.
Panel A. Summary Statistics and Univariate Analysis
Variable
Dependent Variable
Opinion
Independent Variables
Firm Characteristics
Tobin's Q
Debt/Equity
ln (Assets)
Equity Concentration (top 10)
SOE
Board Characteristics
Board Size
% Independent Directors
Chairperson-CEO Duality
Director Characteristics
Accounting
Law
Academic
Bureaucrat
Foreign Experience
Engineer
Male
ln (Age)
ln (Compensation+1)
ln (Days on Board+1)
ln (Number of Shares +1)
Social Ties
Chairperson Departure
Post Chairperson Departure
Post Chairperson Departure ×
ln (Days with Ex-chair +1)**
ln (Days with Current Chair +1)
Endgame
Topic-Subject Fixed Effect
Executive Turnover
Executive Compensation
Mean
Std.
Dev.
10th
Percentile
90th
Percentile
Univariate
Analysis
5746
0.054
0.227
0
1
1
5735
5740
5740
5746
5746
4.458
0.885
21.461
0.158
0.613
42.532
4.186
1.739
0.113
0.487
0.933
0.334
13.076
0.038
0
3.393
0.938
29.979
0.324
1
-0.0143
0.0008
-0.0632*
-0.0011
-0.0255*
5746
5746
5746
10.248
0.358
0.132
2.715
0.059
0.339
4
0.333
0
19
0.429
1
-0.0473*
-0.0384*
0.0135
5726
5726
5726
5726
5726
5726
5726
5726
5726
5746
5726
0.243
0.149
0.413
0.22
0.084
0.073
0.908
3.894
10.114
6.261
0.11
0.429
0.356
0.492
0.414
0.277
0.26
0.288
0.188
2.529
1.215
0.982
0
0
0
0
0
0
0
3.664
0
4.89
0
1
1
1
1
0
0
1
4.174
13.929
7.349
0
0.0015
0.0153
-0.0453*
-0.0023
0.0304*
-0.0465*
0.0113
-0.0266*
-0.0273*
0.0215
-0.0197
5746
5746
0.523
0.302
0.499
0.459
0
0
1
1
0.041*
0.0384*
5746
-0.213
0.555
-1.082
0.148
-0.0142
5746
5746
5.765
0.172
1.456
0.378
4.094
0
7.128
1
0.0002
0.062*
5746
5746
0.211
0.023
0.408
0.151
0
0
1
0
-0.0315*
0.0088
Obs.
46 Financial Report
Related Party Transaction
Credit Guarantee
Investment & Acquisition
Auditing
Change in Equity
Financing
Sale of Assets
Reform of Non-Tradable Shares
5746
5746
5746
5746
5746
5746
5746
5746
5746
0.045
0.295
0.097
0.015
0.016
0.02
0.021
0.014
0.073
0.206
0.456
0.296
0.122
0.124
0.139
0.143
0.116
0.26
0
0
0
0
0
0
0
0
0
Panel B. Multivariate Analyses
Logit
Firm Characteristics
Tobin’s Q
Debt/Equity
ln (Assets)
Equity Concentration (top10)
SOE
Board Characteristics
Board Size
% Independent Directors
Chairperson-CEO duality
Director Characteristics
Accounting
Law
Academic
Bureaucrat
Foreign Experience
Engineer
Male
ln (Age)
ln (Compensation+1)
ln (Days on Board+1)
ln (Number of Shares+1)
Social Ties
Chairperson Departure
Post Chairperson Departure
(1)
(2)
Conditional Logit
(3)
(4)
-0.186
(1.60)
0.444***
(2.67)
-0.224**
(1.98)
1.062
(1.00)
0.110
(0.40)
-0.067
(1.60)
0.254
(1.60)
-0.121
(1.22)
0.941
(0.91)
0.039
(0.15)
-0.245***
(4.27)
0.269
(1.25)
-1.367***
(5.22)
6.018***
(2.85)
1.162**
(2.30)
-0.080**
(2.20)
0.048
(0.27)
-0.762**
(2.53)
4.055
(1.50)
0.844
(1.39)
-0.011
(0.16)
-3.461**
(2.38)
-0.119
(0.41)
-0.016
(0.23)
-3.834**
(2.36)
-0.115
(0.34)
0.062
(1.09)
-1.995
(1.01)
0.572*
(1.78)
0.016
(0.27)
-0.029
(0.01)
0.810**
(2.35)
-0.130
(0.65)
0.012
(0.05)
-0.441
(1.59)
-0.067
(0.28)
0.812**
(2.09)
-1.130**
(2.51)
0.112
(0.39)
-0.090
(0.17)
-0.007
(0.14)
0.009
(0.04)
-0.153
(1.25)
-0.029
(0.15)
0.146
(0.59)
-0.446
(1.60)
-0.107
(0.43)
0.746*
(1.78)
-1.068**
(2.41)
0.297
(0.99)
-0.020
(0.04)
-0.010
(0.21)
0.030
(0.14)
-0.109
(0.83)
0.093
(0.49)
0.137
(0.61)
-0.312
(1.58)
0.186
(0.87)
0.961***
(3.13)
-0.382
(0.84)
-0.029
(0.11)
-0.390
(0.82)
0.007
(0.23)
0.037
(0.32)
-0.083
(0.69)
0.193
(0.97)
0.161
(0.69)
-0.313
(1.51)
0.187
(0.83)
0.961***
(2.97)
-0.432
(0.92)
0.059
(0.21)
-0.341
(0.68)
0.020
(0.62)
0.051
(0.44)
-0.010
(0.08)
0.286
(1.19)
0.440
0.157
(0.65)
0.580*
0.492**
(2.02)
0.684**
0.328
(1.31)
0.901***
47 0
1
0
0
0
0
0
0
1
0.1545*
-0.0869*
0.0183
0.0901*
0.0256
0.0819*
-0.0135
0.0318*
-0.0611*
Post Chairperson Departure ×
ln (Days with Ex-chair +1)
ln (Days with Current Chair+1)
Endgame
Topic-Subject Fixed Effect
Executive Turnover
Executive Compensation
Financial Report
Related Party Transaction
Credit Guarantee
Investment & Acquisition
Auditing
Change in Equity
Financing
Sale of Assets
Reform of Non-Tradable Shares
Year Fixed Effect
Observations
Prob > Chi2
(1.33)
0.371*
(1.69)
0.563**
(2.46)
0.020
(2.99)
0.320
(1.92)
0.023
(0.16)
0.431*
(1.65)
(2.31)
0.020
(0.14)
0.517*
(1.83)
(0.10)
-0.002
(0.03)
0.546***
(2.67)
(1.36)
-0.043
(0.48)
0.752***
(3.38)
1.044*
(1.88)
1.882**
(2.54)
2.934***
(5.15)
0.602
(0.97)
1.623***
(2.74)
3.181***
(5.29)
1.923***
(3.08)
2.626***
(3.42)
1.179
(1.53)
2.227***
(3.33)
-1.176
(1.00)
No
5715
0.0000
0.758
(1.35)
1.756**
(2.27)
2.450***
(4.28)
0.387
(0.62)
1.076*
(1.82)
3.416***
(6.16)
1.460**
(2.43)
2.307***
(3.10)
1.265*
(1.71)
1.550**
(2.32)
-2.193*
(1.91)
Yes
5615
0.0000
1.514***
(3.31)
2.742***
(4.51)
3.895***
(8.05)
0.850*
(1.84)
2.243***
(4.71)
4.521***
(7.75)
2.429***
(3.82)
3.203***
(5.94)
0.823
(0.92)
2.863***
(4.73)
-1.329
(1.58)
No
5647
0.0000
1.523***
(3.15)
2.728***
(4.08)
3.711***
(7.22)
0.961*
(1.96)
1.968***
(3.90)
4.919***
(7.71)
2.502***
(3.72)
2.983***
(5.20)
1.234
(1.31)
2.450***
(3.78)
-1.767**
(2.08)
Yes
5647
0.0000
48 Table 8. Chairperson Departure and Board Endgames
This table represents results of re-estimating the conditional logit model in Table 6, but breakdown Post Chairperson Departure and
Endgame into various cases. The sample contains all director-opinions issued in firms that had at least one director dissented. Panel A
summarizes stated reasons for chairperson departure. Panel B presents regression results.
Panel A. Stated Reasons for Chairperson Departure
Panel A summarizes stated reasons for chairperson departure. Of the 5746 observations contained in our director-vote sample, 3008
director-votes are issued by directors who experienced departure of the appointing board chair. Departure of board chair could occur
due to a variety of reasons, including retirement, end of term, job transfer, resignation, dismissal, lawsuit, personal/health issues, and
change of corporate control.
Stated Reasons for Chairperson
Departure
No. of directoropinions issued before
chairperson departure
No. of directoropinions issued after
chairperson departure
Job Transfer
Retirement
End of Term of Office
Resignation
Dismissal
Lawsuit
Health Issues
Personal Issues
Change of Control
Other
Total
276
60
377
232
30
6
42
45
81
121
1270
802
0
216
431
30
11
52
96
27
73
1738
Total: Director-pinions
issued by directors
experienced departure of
appointing chairperson
1,078
60
593
663
60
17
94
141
108
194
3008
Panel B. Break down chairperson departure and board endgame
Panel B presents regression results of re-estimating the conditional logit model in Table 6, but breakdown Post Chairperson
Departure and Endgame into various cases. The dependent variable is Dissentijtk, a binary variable equal to one if an independent
director j serving on the board of firm i dissented (i.e. issued a disagreement or abstention opinion) at date d in year t. In Column (1),
we break down Post Chairperson Departureijtk according to how listed companies justified the departure to public investors. In
Column (2), we break down Endgame into two cases: endgame due to departure of the chairperson, and endgame due to departure of
the independent director herself. Column (3) replaces Endgame with an exogenously defined board endgame, that is, endgame due to
independent director is nearing the 6 year term limit. Standard errors are clustered at firm. |z| statistics are reported in parentheses. *
denotes significance at 10% level, ** denotes significance at 5% level, and *** denotes significance at 1% level.
(1)
(2)
(3)
Firm Characteristics
Tobin’s Q
-0.238***
-0.247***
-0.226***
(4.19)
(4.23)
(4.33)
Debt/Equity
0.322
0.282
0.277
(1.47)
(1.30)
(1.31)
ln (Assets)
-1.380***
-1.369***
-1.327***
(5.18)
(5.23)
(5.09)
Equity Concentration (top10)
5.947***
6.073***
6.121***
(2.78)
(2.88)
(2.92)
SOE
0.916*
1.239**
1.280**
(1.79)
(2.45)
(2.56)
Board Characteristics
Board Size
0.034
0.065
0.051
(0.60)
(1.12)
(0.88)
% Independent Directors
-3.340
-2.047
-2.136
(1.62)
(1.04)
(1.09)
Chairperson-CEO duality
0.374
0.581*
0.541*
(1.15)
(1.80)
(1.68)
Director Characteristics
Accounting
0.140
0.093
-0.044
(0.73)
(0.49)
(0.24)
Law
0.135
0.132
-0.038
49 Academic
Bureaucrat
Foreign Experience
Engineer
Male
ln (Age)
ln (Compensation+1)
ln (Days on Board+1)
ln (Number of Shares+1)
Social Ties
Chairperson Departure
(0.60)
-0.302
(1.50)
0.185
(0.85)
0.956***
(3.08)
-0.374
(0.82)
0.043
(0.16)
-0.438
(0.91)
0.001
(0.04)
0.024
(0.21)
-0.090
(0.75)
(0.59)
-0.309
(1.56)
0.172
(0.80)
0.956***
(3.11)
-0.393
(0.86)
-0.018
(0.07)
-0.404
(0.85)
0.001
(0.03)
0.050
(0.44)
-0.079
(0.65)
(0.17)
-0.416**
(2.12)
0.083
(0.39)
0.882***
(2.86)
-0.510
(1.12)
-0.029
(0.11)
-0.376
(0.79)
-0.024
(0.85)
0.070
(0.61)
-0.078
(0.64)
0.580**
(2.37)
0.478**
(1.96)
0.658**
(2.33)
0.433*
(1.74)
0.799***
(2.80)
0.019
0.079
(0.09)
-0.005
(0.06)
(0.38)
0.043
(0.50)
Post Chairperson Departure
Job Transfer
End of Term
Resignation, Dismissal, Lawsuit
Health or Personal Issues
Change Control
Other
Post Chairperson Departure ×
ln (Days with Ex-chair +1)
ln (Days with Current Chair+1)
Endgame
0.102
(0.28)
0.814*
(1.86)
1.149***
(3.21)
2.280***
(4.01)
-1.084
(0.78)
-0.662
(0.88)
0.150
(0.69)
0.018
(0.20)
0.567***
(2.71)
Director Departure
0.466*
(1.74)
0.198
(0.76)
Chairperson Departure
Director Term Limit
Topic-Subject Fixed Effect
Observations
Prob > Chi2
Yes
5647
0.0000
Yes
5647
0.0000
50 -1.163***
(2.85)
Yes
5647
0.0000
Table 9. Matching Estimations
This table presents propensity score matching results. Table 8a describes propensity score matching. In the first stage, we use firmyear observations to estimate the likelihood for a board chair to leave the board based on observable firm characteristics. In the second
stage, we match each observation in our director-vote sample with its corresponding firm-year propensity score of chairperson
departure. As a result, each director-vote observation is matched into one of the four data blocks. Table 8b re-estimates the models in
Table 6, by adding block fixed effects to the baseline specifications.
Table 9a. First-Stage Propensity Score Matching Results: Predicting Chairperson Departure
Panel A. Logit Estimation of Chairperson Departure
Panel A represents results from estimating the following logit model:
Chairperson Transitionit = β0 + β1 Tobin’s Qit-1 + β2Debt/Equityit-1 + β3 ln(Assets)it + β4 Equity Concentrationit + β5
SOEit + β6 Board Size+ β7 % Independent Directorsit + β8 Chairperson-CEO Duality+Ɛit
where the dependent variable is Chairperson Transition, a binary variable equal to one if firm i had its board chair left the position in
year t. The sample contains all firms in the main estimation sample (i.e. all firms that had at least one dissent) from August 2001 to
June 2010. Robust |z| statistics are reported in parentheses. * denotes significance at 10% level, ** denotes significance at 5% level,
and *** denotes significance at 1% level.
Chairperson Transition
Tobin’s Q
0.003
(1.21)
Debt/Equity
0.013
(0.45)
ln (Assets)
-0.010
(0.14)
Equity Concentration (top 10)
-0.935
(1.16)
SOE
-0.119
(0.59)
Board Size
0.012
(0.27)
% Independent Directors
4.671***
(4.09)
Chairperson-CEO Duality
0.136
(0.49)
Observations
997
Prob > chi2
0.0001
Pseudo R2
0.0392
Panel B. Propensity Score Matching on Chairperson Departure
The balancing property is satisfied for all predictor variables: the mean is not different for treated and controls in each data block.
Detailed t-test statistics for difference in mean on each predictor variable between treated (i.e. firm i had chairperson departure in year
t) and control (i.e. firm i did not have chairperson departure in year t) are available upon request. Matching results in 4 data blocks.
Likelihood of
Control
Treated
Chairperson
(firm i did not have chairperson departure in year t)
(firm i had chairperson departure in year t)
Departure
Block ID
Mean
Std. Dev
Mean
Std. Dev
1
0.14292
0.03247
0.15072
0.02563
2
0.24853
0.04957
0.24981
0.04783
3
0.51183
0.02716
0.4371
.
4
0.86431
0.06631
Table 9b. Predicting Independent Directors’ Dissent Using Matched Sample
This table represents results from estimating the following logit model:
Dissentiitk= β0 + β1Tobin’s Qit + β2Debt/Equityit + β3 ln(Asset)it + β4 Equity Concentrationit + β5 SOEit + β6 Board Sizeit + β7 %
Independent Directorsit + β8 Chairperson-CEO Duality+ β9 Accountingij + β10 Lawij + β11Academicij + β12 Bureaucratij + β13
Foreign Experienceij+ β14 Engineerij + β15 Maleij + β16 ln (Age)ijt+ β17ln (Compensation+1)ijt +β18 ln(Days on Board+1)ijtd +
β19 ln(Number of Shares+1)ijt + β20 Chairperson Departureijtk+ β21 Post Chairperson Departureijtk + β22 Post Chairperson
Departureijtk ×ln (Days with Ex-chair +1)ijtk+ β23 ln(Days with Current Chair)ijtk + β24 Endgameijtk + Ɛijtk
51 Where i indexes firm, j indexes independent director, t indexes year, and k indexes opinion. The dependent variable is Dissentijtk, a
binary variable equal to one if an independent director j serving on the board of firm i dissented (i.e. issued a disagreement or
abstention opinion) at date d in year t. Column (1) and (2) contains all director-opinions issued in firms that had at least one director
dissented from August 2001 to June 2010. Column (1) presents results of the pooled, cross-sectional logit estimation, and Column (2)
presents results of the conditional logit estimation. Standard errors are clustered at firm. Robust |z| statistics are reported in parentheses.
*denotes significace at 10% level, ** denotes significance at 5% level, and *** denotes significance at 1% level.
Logit
Conditional Logit
(1)
(2)
(3)
(4)
Firm Characteristics
Tobin’s Q
-0.181**
-0.066**
-0.243***
-0.087**
(2.06)
(2.11)
(4.26)
(2.32)
Debt/Equity
0.403***
0.233**
0.277
0.077
(2.91)
(1.96)
(1.25)
(0.41)
ln (Assets)
-0.236**
-0.131
-1.411***
-0.842***
(2.18)
(1.35)
(5.36)
(2.77)
Equity Concentration (top10)
1.121
0.998
5.577***
3.387
(1.03)
(0.94)
(2.62)
(1.23)
SOE
0.121
0.059
1.239**
1.045*
(0.44)
(0.21)
(2.47)
(1.75)
Board Characteristics
Board Size
0.016
0.013
0.083
0.040
(0.23)
(0.20)
(1.42)
(0.66)
% Independent Directors
-3.875**
-4.015**
-0.768
1.438
(2.48)
(2.38)
(0.36)
(0.59)
Chairperson-CEO duality
-0.013
-0.014
0.603*
0.843**
(0.04)
(0.04)
(1.86)
(2.42)
Director Characteristics
Accounting
-0.085
0.003
0.086
0.189
(0.41)
(0.02)
(0.45)
(0.95)
Law
0.152
0.238
0.167
0.177
(0.60)
(1.01)
(0.74)
(0.75)
Academic
-0.385
-0.402
-0.285
-0.275
(1.46)
(1.50)
(1.43)
(1.32)
Bureaucrat
-0.071
-0.130
0.170
0.155
(0.31)
(0.56)
(0.78)
(0.68)
Foreign Experience
0.737**
0.685*
0.917***
0.899***
(2.13)
(1.86)
(3.00)
(2.79)
Engineer
-0.997**
-0.978**
-0.371
-0.427
(2.26)
(2.22)
(0.81)
(0.91)
Male
0.095
0.266
-0.061
0.023
(0.32)
(0.89)
(0.23)
(0.08)
ln (Age)
-0.230
-0.122
-0.442
-0.381
(0.46)
(0.25)
(0.93)
(0.76)
ln (Compensation+1)
-0.021
-0.023
0.005
0.023
(0.44)
(0.49)
(0.16)
(0.68)
ln (Days on Board+1)
0.015
0.020
0.016
0.023
(0.07)
(0.09)
(0.14)
(0.19)
ln (Number of Shares+1)
-0.154
-0.107
-0.085
-0.012
(1.25)
(0.82)
(0.70)
(0.10)
Social Ties
Chairperson Departure
0.254
0.139
0.405*
0.239
(1.10)
(0.59)
(1.66)
(0.94)
Post Chairperson Departure
0.452
0.623*
0.738***
0.960***
(1.39)
(1.82)
(2.63)
(3.16)
Post Chairperson Departure ×
0.327
0.536**
0.117
0.446*
ln (Days with Ex-chair +1)
(1.60)
(2.12)
(0.56)
(1.85)
ln (Days with Current Chair+1)
0.016
0.014
-0.002
-0.041
(0.11)
(0.10)
(0.02)
52 (0.45)
Endgame
Topic-Subject Fixed Effect
Year Fixed Effect
Observations
Prob > Chi2
0.474*
(1.82)
Yes
No
5715
0.0000
0.579**
(2.06)
Yes
Yes
5615
0.0000
53 0.539***
(2.61)
Yes
No
5647
0.0000
0.758***
(3.39)
Yes
Yes
5647
0.0000
Table 10. Justification for Dissent
This table represents results from estimating the following unconditional multinomial logit model19:
Dissent Typeiitk= β0 + β1Tobin’s Qit + β2Debt/Equityit + β3 ln(Asset)it + β4 Equity Concentrationit + β5 SOEit + β6 Board Sizeit
+ β7 % Independent Directorsit + β8 Chairperson-CEO Duality+ β9 Accountingij + β10 Lawij + β11Academicij + β12
Bureaucratij + β13 Foreign Experienceij+ β14 Engineerij + β15 Maleij + β16 ln (Age)ijt+ β17ln (Compensation+1)ijt +β18
ln(Days on Board+1)ijtd + β19 ln(Number of Shares+1)ijt + β20 Chairperson Departureijtk+ β21 Post Chairperson Departureijtk
+ β22 Post Chairperson Departureijtk ×ln (Days with Ex-chair +1)ijtk+ β23 ln(Days with Current Chair)ijtk + β24 Endgameijtk +
Ɛijtk
Where i indexes firm, j indexes independent director, t indexes year, and k indexes opinion. The dependent variable is Dissent Typeijkt,
a categorical variable indicating independent director j’s justification for dissent if j dissented (i.e. issued a disagreement or abstention
opinion) in opinion k at date d in year t. The baseline Dissent Type is “agreement”. The sample contains all director-opinions issued in
firms that had at least one director dissented from August 2001 to June 2010. Robust |z| statistics are reported in parentheses. *
denotes significance at 10% level, ** denotes significance at 5% level, *** denotes significance at 1% level. Regression contains
unreported topic-subject fixed effect. No. of Observation=5715. Prob.Chi2>0=0.0000; Pseudo R2=0.2465.
Justification for Dissent
Violation of
Poor
Information
Personal
Different
No
Regulation
Performance Barrier
Issue
Judgment
Justification
Firm Characteristics
Tobin’s Q
-0.586***
-0.076
-0.081
-0.006
-0.991***
-0.566***
(2.7)
(1.6)
(1.28)
(0.12)
(4.96)
(2.56)
Debt/Equity
-0.731
0.106
0.024
0.006
0.243
1.205***
(1.58)
(0.41)
(0.11)
(0.02)
(0.79)
(6.86)
ln (Assets)
-0.463***
-1.050***
-0.401***
0.155
-0.233**
-0.161
(2.63)
(3.53)
(3.07)
(0.54)
(2.49)
(1.01)
Equity Concentration (top10)
1.753
3.916
-1.091
-0.451
1.075
0.966
(1.05)
(1.34)
(0.75)
(0.14)
(1.06)
(0.6)
SOE
-0.279
-0.489
0.063
0.687
0.234
0.326
(0.8)
(0.85)
(0.22)
(0.96)
(0.92)
(0.77)
Board Characteristics
Board Size
-0.099
0.044
0.067
-0.156
0.037
-0.137
(1.05)
(0.33)
(1.08)
(0.99)
(0.73)
(1.35)
% Independent Directors
-5.519**
1.762
-2.643
-1.120
-5.138***
-4.715*
(2.1)
(0.51)
(1.12)
(0.25)
(2.84)
(1.71)
Chairperson-CEO duality
0.899**
-0.622
-0.303
0.424
-0.145
-1.607**
(2.33)
(0.99)
(0.78)
(0.52)
(0.41)
(2.27)
Director Characteristics
Accounting
-0.759*
0.702
-0.204
-2.143**
0.172
0.289
(1.72)
(1.3)
(0.64)
(1.88)
(0.68)
(0.71)
Law
-0.233
0.201
0.155
0.336
-0.035
0.190
(0.52)
(0.3)
(0.44)
(0.45)
(0.12)
(0.38)
Academic
0.244
-0.438
-0.012
-2.158**
-0.659***
-0.940**
(0.66)
(0.75)
(0.04)
(2.48)
(2.67)
(2.14)
Bureaucrat
0.411
0.467
-0.257
-1.055
-0.350
0.443
(0.97)
(0.71)
(0.7)
(1.16)
(1.22)
(1.09)
Foreign Experience
-0.141
1.825***
0.537
0.259
0.890***
0.625
(0.22)
(2.67)
(1.3)
(0.26)
(2.83)
(0.92)
Engineer
-1.112
0.580
-1.528
-16.084
-1.042*
-1.189
(1.06)
(0.5)
(1.48)
(0)
(1.68)
(1.1)
Male
1.732*
0.452
-0.131
-1.079
0.179
-0.477
(1.67)
(0.54)
(0.29)
(1.37)
(0.45)
(0.83)
ln (Age)
-1.580
-3.287**
0.267
-0.407
0.502
1.380
(1.61)
(2.01)
(0.36)
(0.24)
(0.84)
(1.5)
ln (Compensation+1)
-0.055
-0.152**
0.030
-0.201***
0.020
0.044
(1.00)
(2.14)
(0.58)
(2.7)
(0.45)
(0.52)
ln (Days on Board+1)
-0.064
-0.352
-0.214
0.324
0.221
0.768**
(0.36)
(0.87)
(1.35)
(0.42)
(1.13)
(2.11)
ln (Number of Shares+1)
-2.022
-1.816
-2.043
-1.925
-0.017
-1.906
19
Conditional (fixed effect) multinomial logit model is not theoretically derived. 54 Social Ties
Chairperson Departure
Post Chairperson Departure
Post Chairperson Departure ×
ln(Days with Ex-chair+1)
ln (Days with Current Chair+1)
Endgame
(0)
(0)
(0)
(0)
(0.15)
(0)
0.485
(1.2)
0.665
(1.29)
0.581
(0.87)
1.715**
(2.12)
-0.281
(0.77)
1.242***
(2.82)
0.655
(0.73)
1.134
(1.03)
0.157
(0.6)
-0.111
(0.26)
1.248***
(2.53)
-0.477
(0.8)
0.973***
(2.46)
-0.115
(0.85)
0.520
(1.30)
1.078*
(1.88)
0.530
(1.48)
-0.644
(0.88)
0.496*
(1.85)
-0.046
(0.35)
1.049***
(3.41)
-0.373
(0.6)
0.714
(1.3)
-2.523**
(2.26)
0.324
(1.16)
0.006
(0.04)
0.450*
(1.65)
-0.239
(0.71)
-0.078
(0.45)
0.624
(1.58)
55 Table 11. Career Consequences of Dissent
This table documents career consequences of dissent. The sample consists of independent directors who showed up in our directorvote sample, i.e. directors sitting on the boards of firms that had at least one dissent from August 2001 to June 2010. Panel A provides
matched-sample mean comparisons. Panel B presents results of multivariate analyses.
Panel A. Matched-sample comparisons
Panel A provides matched-sample comparisons. Of the 211 opinion reports containing dissent, 185 reports has at least one
independent director dissented but the rest chose not to dissent. For each of such reports, we match dissenters with supporters, and
document the mean difference in career outcomes at end-2011. * denotes significance at 10% level, ** denotes significance at 5%
level, and *** denotes significance at 1% level.
Dissenter
Supporter
Diff (Dissenter-Supporter)
t-statistic
% Keep Directorship
0.59
0.85
-0.26***
-4.5509
No. of Board Seats
1.54
1.71
-0.16
-0.9278
Panel B. Multivariate Analyses
Panel B represents results from estimating the following model:
Director j , 2011   0   1 Tobin ' sQ ijt   2 Debt / Equity ijt   3 ln( Assets ) ijt   4 EquityConc entration ijt 
 5 SOE ijt   6 BoardSize ijt   7 Fractionof Independen tDirectors ijt   8 Chairman  CEODuality ijt   9 Accounting j 
 10 Law j   11 Academic j   12 Bureaucrat j  13 ForeignExp ereincej  14 Engineer j   15 Male j   16 ln( Age ) j , 2011 
 17 ln( Compensati on  1) ijt   18 ln( NumberofSh ares  1) ijt   19 Dissent j   j
Column (1) and (2) estimate a logit model where the dependent variable is Directorshipj, 2011, a binary variable equal to one if
independent director j held independent directorship in any public firm at end-2011. Column (3) and (4) estimate a poisson model
where the dependent variable is Board Seatsj, 2011, equal to the total number of boards seats independent direct j holds at end-2011.
X ijt
X


i ,t
it
for each j , variable X averaged over all firm-years (i.e. not restricted to the 113 firms) that independent director j
i .t .
has sit on the board, where X= Tobin’s Q, Debt/Equity, ln(Assets), Equity Concentration, SOE, Board Size, % Independent Directors,
Chairperson-CEO Duality, ln (Compensation+1), or ln(Number of Shares+1). Robust| z| statistics are reported in parentheses. *
denotes significance at 10% level, ** denotes significance at 5% level, and *** denotes significance at 1% level.
(1)
(2)
(3)
(4)
Firm Characteristics
Tobin’s Q
0.074
0.083
0.002***
0.002***
(1.14)
(1.27)
(5.26)
(5.50)
Debt/Equity
-0.157
-0.177
-0.014
-0.016*
(1.30)
(1.47)
(1.39)
(1.77)
ln (Assets)
0.139***
0.140***
0.090***
0.091***
(2.77)
(2.78)
(2.81)
(2.81)
Equity Concentration (top10)
-0.155
-0.137
0.107
0.122
(0.28)
(0.24)
(0.29)
(0.33)
SOE
-0.277*
-0.275*
0.143
0.146
(1.79)
(1.78)
(1.34)
(1.37)
Board Characteristics
Board Size
-0.027
-0.025
-0.035
-0.033
(1.18)
(1.13)
(1.49)
(1.41)
% Independent Directors
0.008
0.066
-0.471
-0.334
(0.01)
(0.06)
(0.61)
(0.43)
Chairperson-CEO duality
0.171
0.186
0.260
0.272*
(1.04)
(1.14)
(1.64)
(1.72)
Director Characteristics
56 Accounting
Law
Academic
Bureaucrat
Foreign Experience
Engineer
Male
ln (Age)
ln (Compensation+1)
ln (Number of Shares+1)
Dissent
0.710***
(5.31)
0.668***
(4.14)
0.566***
(4.88)
-0.034
(0.25)
-0.173
(0.92)
0.033
(0.16)
0.050
(0.29)
2.199***
(6.40)
-0.034
(1.60)
0.283***
(3.67)
-0.321***
(2.78)
Number of Dissent
Observations
Prob > Chi2
762
0.0000
0.703***
(5.26)
0.683***
(4.23)
0.561***
(4.85)
-0.052
(0.38)
-0.174
(0.92)
0.044
(0.21)
0.059
(0.35)
2.203***
(6.42)
-0.033
(1.56)
0.276***
(3.55)
-0.146**
(2.53)
762
0.000
57 0.424***
(4.40)
0.320**
(2.18)
0.477***
(5.23)
0.146
(1.13)
-0.171
(1.09)
-0.078
(0.43)
0.069
(0.44)
-0.510
(1.00)
-0.097***
(5.39)
0.166***
(5.30)
-0.158
(1.35)
762
0.0000
0.422***
(4.38)
0.327**
(2.27)
0.482***
(5.29)
0.138
(1.06)
-0.175
(1.11)
-0.068
(0.37)
0.069
(0.44)
-0.512
(0.99)
-0.098***
(5.40)
0.167***
(5.33)
-0.034
(0.59)
762
0.000
Table 12. Dissent and Performance Variability
This table documents implication of independent directors’ dissent on variability of firm performance. The sample consists of all
Chinese listed firms from 2001 to 2010. Panel A provides the descriptive statistics on within-firm performance variability across two
groups of firms: firms that never had dissent and firms that had at least one dissent over our sample period. Panel B predicts firms’
performance variability with independent directors’ dissent, using firm-year observations.
Panel A. Cross-sectional Relation between Dissent and Within-Firm, Cross-Year Performance Variability
Within-Firm, Cross-Year Standard Deviation
ROA
Tobin's Q
Firms without dissent
4.955
4.680
Firms with dissent
2.395
5.775
P-value for two-tailed t-test
0.885
0.935
Panel B. Dissent and Performance Variability
Panel B represents results from estimating the following model:
| Ɛit | = β0 + β1 Board Sizeit + β2% Independent Directorsit + β3Debt/Equityit + β4 Equity Concentrationit + β5 SOEit
+ + β6 ln(Assets)it + β7 Director Stock Optionit +β8 Dissentit + β9Dissenti,t-1 + φit
Where i indexes firm and t indexes year. The dependent variable is Performance Variability | Ɛit |, defined as the absolute deviation
from expected performance. Expected performance is predicted from the following model (Sanders and Hambrick, 2007; Nakano and
Nguyen, 2012):
Performanceit= β0 + β1 Board Sizeit + β2% Independent Directorsit + β3Debt/Equityit + β4 Equity Concentrationit +
β5 SOEit + + β6 ln(Assets)it + β7 Director Stock Optionit +β8 Dissentit + β9Dissenti,t-1 + Ɛit
The sample consists of all Chinese listed firms from 2001 to 2010. Standard errors are clustered at Firm. Robust |t| statistics are
reported in parentheses. * denotes significance at 10%, ** denotes significance at 5%, and *** denotes significance at 1% for twotailed test. + denotes significance at 10% for one-tailed test.
Board Size
% Independent Directors
Debt/Equity
Equity Concentration (Top 10)
SOE
ln (asset)
Director Stock Option
Dissent
Lagged Dissent
Fixed Effect
Observations
R-squared
(1)
ROA
-4.059
(0.81)
49.571
(1.48)
7.431
(1.60)
8.576
(0.85)
-0.715
(0.25)
-7.299
(0.87)
4.301
(0.67)
-5.031*
(1.69)
-7.504
(0.83)
Year
12630
0.09
Absolute Deviation from Expected Performance
(2)
(3)
Tobin’s Q
ROA
-4.341
-1.779
(0.69)
(0.61)
48.064
18.355
(1.63)
(0.90)
7.430
7.132*
(1.61)
(1.69)
10.380
15.623
(1.06)
(0.96)
-1.786
5.360
(0.69)
(0.85)
-7.983
-11.729
(0.97)
(1.01)
-0.042
9.700
(0.02)
(1.00)
-5.181+
-0.365
(1.55)
(0.22)
-10.499
-7.323
(1.05)
(0.78)
Year
12564
0.17
58 Industry & Year
12630
0.16
(4)
Tobin’s Q
-1.758
(0.56)
20.175
(1.06)
7.104*
(1.71)
17.262
(1.07)
4.984
(0.82)
-11.917
(1.08)
5.198
(0.97)
-1.107
(0.64)
-9.052
(0.99)
Industry &Year
12564
0.30
Table 13. Stock Market Reaction to Independent Director’s Dissent
The table displays average abnormal returns (ARs) and cumulative abnormal returns (CARs) for [−15, 15] days surrounding
announcement of independent directors’ dissent (i.e. Day 0), equally weighted across all dissenting events. The sample consists of all
dissenting events from August 2001 to June 2010. Abnormal returns are estimated from the CAMP model, where the market beta is
estimated using daily stock return data over the [−120, −31] day estimation window. The market return is composite index return of
the Shanghai Stock Exchange or the Shenzhen Stock Exchange. * denotes significance at 10%, ** denotes significance at 5%, and ***
denotes significance at 1% for two-tailed test.
Day
-15
-14
-13
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Mean AR
-0.20%
0.09%
-0.34%
-0.50%**
-0.06%
0.05%
0.45%*
-0.14%
-0.16%
-0.30%
-0.50%*
-0.46%*
-0.47%
-0.03%
-0.28%
-0.43%*
-0.27%
-0.25%
0.05%
-0.12%
0.63%**
0.04%
-0.11%
0.21%
-0.21%
-0.56%**
-0.14%
0.21%
0.06%
0.27%
0.23%
Test
Statistic
-0.93
0.39
-1.36
-1.98
-0.23
0.17
1.79
-0.64
-0.69
-1.22
-1.92
-1.72
-1.60
-0.12
-1.31
-1.92
-1.08
-0.97
0.17
-0.40
2.47
0.19
-0.48
0.80
-0.79
-2.05
-0.49
0.83
0.29
1.20
0.93
Mean
CAR
-0.20%
-0.10%
-0.55%
-0.81%*
-0.55%
-0.20%
-0.06%
-0.68%
-0.23%
-0.98%
-1.54%*
-1.24%
-2.28%**
-1.76%**
-1.63%**
-1.79%**
-2.53%**
-2.77%**
-2.15%*
-3.65%***
-2.58%**
-2.07%**
-1.97%*
-2.88%**
-3.52%***
-2.79%*
-2.90%*
-3.23%**
-2.86%**
-1.77%
-2.59%*
Test
Statistic
-0.93
-0.3
-1.33
-1.75
-1.17
-0.36
-0.1
-1.15
-0.34
-1.35
-1.84
-1.31
-2.14
-1.98
-2.06
-2.03
-2.45
-2.6
-1.76
-2.58
-2.26
-2.01
-1.72
-2.37
-2.66
-1.9
-1.8
-2.36
-2.34
-1.24
-1.85
59 Exhibit 1: Rotation of Board chairs in China’s Banking Industry, at end-2010
Exhibit 1 identifies board chairs of China’s big five state-owned banks as of end-2010, as well as the chairman’s previous position in
the government/SOE system. Data are retrieved from World Financial Review http://www.worldfinancialreview.com/?p=1251 on
October 10th, 2012. CCP is the acronym for Chinese Communist Party. PBOC is the acronym for People’s Bank of China. CBRC is
the acronym for China Banking Regulatory Commission. NDRC is the acronym for National Development and Reform Commission.
SAFE is the acronym for State Administration of Foreign Exchange. Orient AMC is the acronym for China Orient Asset Manager
Corporation, a state-owned asset management firm.
Exhibit 2. Timing of Independent Directors’ Dissent: A Stylized Case
Exhibit 2 illustrates “timing” of independent directors’ dissent with a stylized case. Panel A depicts the case. Panel B shows the
original and translated texts of the dissenting opinions. Panel C compares the firm with listed firms’ median before board chair
succession. Panel D displays characteristics of the independent directors showed up in the case. *1 Chinese Yuan=0.16 USD as of
10/5/2012.
Panel A. Timing of Independent Directors’ Dissent
60 Panel B. Director D’s Justifications for Dissent
Date
Chinese Texts
Translation
2006-04-29
独立董事D对董事会报告、业务工作报告、财务决
算报告、年报及年报摘要反对理由：
（1）独董产生程序违法
（2）董事会工作混乱。
（3）公司经营班子长期缺职
（4）没有经营规划思路
（5）应收帐款长期高位运行，没有积极采取清
收办法。
Independent director D disagreed on report of board of directors, the company’s
operations reports, final accounts statements and annual reports, for the following
reasons
2006-05-19
关于修订本公司《章程》的议案; 关于修改本公司
股东大会议事规则的议案;
关于修改本公司董事会议事规则的议案。独立董事
D 未陈述其反对理由。
Independent Director D opposed on the “proposal to amend the company's articles
of incorporation”, “proposal to revise the rules and procedures of shareholders’
meeting”, and “proposal to revise rules and procedures of board of directors”.
Independent director D did not justify his opposition.
2006-08-19
公司 2006 年度半年度报告和半年度报告摘要: 独立
董事 D 未陈述其反对理由。
Independent Director D disagreed on Year 2006’s semi-annual report and its
excerpt: independent director D did not state reasons for opposing it.
2009-08-17
公司 2009 年度半年报及半年报摘要: 独立董事 D 弃
权. 独立董事 D 弃权的理由是：因种种原因，本人
对公司的经营状况不了解。
Independent Director D abstained from issuing opinions on Year 2009’s semiannual report and its excerpt. Independent director D’s justification is as follows:
for various reasons, I am not familiar with the company’s operations.
(1) Illegal independent director selection process
(2) Messy operation of board of directors
(3) The company’s top management has been inactive for a long period of time
(4) The company has no business plan
(5) Accounts receivable runs high for a long period of time, and no affirmative
actions have been taken to collect receivables.
Panel C: Firm Characteristics, at end-2004
Focal Company
Listed Companies’ Median
ROA
Debt/Equity
Tobin's Q
SOE dummy
Assets
(Billions of
CNY)
Employees
Equity
Concentration (top
10)
% Independent
Directors
0.01
0.03
0.59
0.51
0.92
1.07
0
1
0.86
1.47
52
1613
0.1
0.19
0.33
0.33
61 Panel D: Independent Director Characteristics, at end-2004/2005
Shareholdi
ng (at end2004)
0
Independ
ent
Director
A’
Year of
Birth
Gender
Profession
Accounting
Compensatio
n (in USD, at
end-2004)
6,364
1961
M
Engineer
Law
6,364
6,364
6,364
0
0
0
B’
C’
D
1968
1963
1963
M
M
M
Accounting;
Academic
Law
Independ
ent
Director
A
Year of
Birth
Gender
Profession
1962
M
B
C
D
1960
1963
1963
M
F
M
62 Compensation
(in USD, at
end-2005)
6,364
Shareholdin
g(at end2005)
0
6,364
6,364
6,364
0
0
0
Exhibit 3: Stock Market Reaction to Independent Directors’ Dissent
The graph plots abnormal returns (ARs) and cumulative abnormal returns (CARs) for [−15, 15] days surrounding
announcement of independent directors’ dissent (i.e. day 0), equally weighted across all dissenting events. Abnormal returns
are calculated using the market model, where the market beta is estimated using daily stock return data over the [−120, −31]
day estimation window. The market return is composite index return of the Shanghai Stock Exchange or the Shenzhen Stock
Exchange.
0.01
Return
0
-15-14-13-12-11-10-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
-0.01
Average CAR
-0.02
-0.03
-0.04
Days Relative to the Announcement Date
63 Average AR
Appendix. Examples of Independent Directors’ Disagreement, Abstention and Agreement Opinions
Panel A. Examples of Dissenting (Disagreement or Abstention) Opinions
Example 1: Disagreement (Chinese Characters: 反对，提出异议，保留意见)
广夏（银川）实业股份有限公司董事局决议公告
六.独立董事关于《担保风险防控预案》的独立意见
（一）…
（二）于富生、刘俊彦独立董事对《担保风险防控预案》发表独立意见如下：
根据《公司法》、《关于在上市公司建立独立董事制度的指导意见》等法律法规以及《公司章程》、《独立董事制
度》的规定，作为广夏（银川）实业股份有限公司的独立董事，我们本着客观、公正的原则，对公司董事局制订的
《担保风险防控预案》发表独立意见如下：
2009 年12 月6 日晚我们独立董事在北京召集了独立董事会议，公司董事局主席朱关湖先生、总裁冯家海先生、副总
裁禹万明先生参加了会议，会议就解决浙江长金公司履行偿还农业银行债务、解决公司担保责任问题进行了讨论。
我们督促浙江长金公司竭尽全力筹措资金尽快偿还农业银行债务，履行其在“承诺函”中所做出的承诺。会议形成如
下意见：
1.由朱关湖先生负责竭尽全力尽快筹措资金偿还农行债务，以解除广夏公司担保
责任。独立董事提请朱关湖先生，无论是作为银广夏的董事局主席还是浙江长金公司的董事长，要充分认识到违背
承诺给银广夏、浙江长金及其本人带来的严重负面影响，抓紧时间，切实履行承诺，尽一切努力，确保如期完成解
除广夏公司担保风险的工作。
2.由公司总裁冯家海先生协助朱关湖先生履行义务。
3.如果浙江长金公司不能履行义务解除广夏公司担保责任，广夏公司经营班子应采取进一步措施。
鉴于浙江长金公司至今未能及时履行偿还农业银行债务，并且其所持有的广夏公司股份已经质押给他人，由此不能
解除广夏公司的债务担保责任，给公司带来重大风险，我们认为《担保风险防控预案》对于解决该问题的力度不够，
因此，我们对该议案投反对票。我们建议经营班子尽快制定出切实可行的措施解决该问题。
同时，我们独立董事也注意到公司监事会所提出的意见，建议公司经营班子依据《公司法》和《公司章程》的规定，
重视监事会提出的问题，并拟定出解决问题案提交董事会讨论。
特此公告。
广夏（银川）实业股份有限公司 二○○九年十二月九日
Guangxia (Yinchuan) Industry Co., Ltd. Board of Directors meeting announcement
Section 6. Independent directors’ opinions on “Risk Control Measures for Credit Guarantee Transaction”
(A) Omitted
(B) Independent directors Yu Fusheng and Liu Junyan issued the following independent opinions on “Risk Control Measures
for Credit Guarantee Transaction”:
According to Company Law, “Guiding Opinions on Establishing the Independent Director Institution in Listed Companies”,
other applicable laws and regulations and Articles of Incorporation of the Company, as independent directors of Guangxia
(Yinchuan) Industry Co., Ltd., we issued our opinions on the Company's “Risk Control Measures for Credit Guarantee
Transaction”, based on the principles of objectivity and impartiality.
We independent directors convened in Beijing on the evening of December 6, 2009 for a meeting. The Chairperson of Board
of Directors Mr. Zhu Guanhu, President Mr. Feng Jiahai, Vice president Mr. Yu Wanming attended the meeting. The meeting
discussed the Company’s credit guarantee issue: the guaranteed party Zhejiang Changjin Co. (had problem with) repaying
debt to China Agricultural Bank. We urge Zhejiang Changjin Co. to make every effort to raise funds to repay the Agricultural
Bank debt, and to fulfill its commitments made in the "letter of commitment". The meeting reached the following
consensuses:
1. Mr. Zhu Guanhu is responsible for making every effort to raise funds to repay the Agricultural Bank debt as soon as
possible to remove the Company’s guarantee responsibility. Independent directors wish Mr. Zhu Guanghu, as the
Chairperson of Board of Directors of both Guangxia (Yinchuan) Co. and Zhejiang Changjin Co. to fully recognize the
negative impact of breaking his promises on Guangxia (Yinchuang) Co., Zhejiang Changjin Co. and himself. (We hope) Mr.
Zhu Guanghu to seize time to fulfill his commitment, and to discharge Guangxia (Yinchuan)’s guarantee risk in a timely
manner.
64 2. President Mr. Feng Jiahai shall assist Mr. Zhu Guanhu to fulfill his obligation.
3. If Zhejiang Changjin Co. is unable to fulfill its obligation in discharging the Guangxia’s guarantee responsibility,
management team should take further actions.
Given Zhenjiang Changjin Co. is unable to repay its debt to the Agricultural Bank and it has pledged its Guangxia shares to
other, thus (it) can not relieve Guangxia’s credit guarantee obligation, which poses significant risks to the Company. We
believe that the measures proposed in “Risk Control Measures for Credit Guarantee Transaction” is not enough to solve the
problem, therefore, we voted against it. We recommend that the management team to develop practical measures to resolve
the problem as soon as possible. At the same time, we independent directors also noticed the suggestions made by the Board
of Supervisors. We suggested that the management team, in accordance with the provisions of Company Law and the
Articles of Incorporation of the Company, to pay attention to the issues raised by the Board of Supervisors basis and to
develop practical measures for the board to discuss.
Guangxia (Yinchuan) Industry Co., Ltd.
December 9, 2009
Example 2: Abstention (Chinese Characters: 弃权， 无法发表意见，无法判断)
广东风华高新科技股份有限公司第四届董事会 2005 年第三次会议决议公告 附件：公司独立董事意见
广东风华高新科技股份有限公司独立董事意见
公司独立董事认为，公司未及时、详尽的向独立董事告知大股东金占用信息，在此之前，作为独立董事并不知悉公
司违规为控股股东提供非经营性 资金，该事项事前事后未告知独立董事，公司对大股东非经营性资金占用未能履行
必要的审批程序，也未能及时履行信息披露义务，导致独立董事对此没有也无法发 表任何意见。
上述情况的发生，作为独立董事，认为公司内控制度存在缺陷，公司应加强财务管理和资金管理制度化建设，严格
控制与风华集团之间的资金往来， 切实履行关联交易审批程序，充分履行信息披露工作。采取切实可行的措施，尽
快解除上述资金占用，防止类似情况再次发生，切实保护公司和股东的利益；对于大 股东提出的偿还方案，我们将
督促公司与大股东及其主管部门落实具体措施。
广东风华高新科技股份有限公司
独立董事：张育仁、刘恒、黄兆俊、鞠建华
二 00 五年八月十八日
Year 2005 Fourth-Third Meeting of Board of Guangdong Fenghua High Technology Co., Ltd.
Appendix: Opinions of Independent Directors
Opinions of independent directors of the Guangdong Fenghua High Technology Co., Ltd.
We independent directors hold that, the Company did not inform independent directors of controlling shareholder’s fund use
in a timely, detailed manner. As independent directors, we were not aware of the use of non-operating funds by the
controlling shareholder that violates relevant regulations, the Company failed to follow the necessary ratification and
disclosure processes, making independent directors unable to express any opinion.
In light of the above, as independent directors we believe that the Company’s internal control system is defective. The
Company shall improve its capital management, strictly control the cash flow between the Company and Fenghua Group (i.e.
the controlling shareholder), follow ratification rules and regulations for relevant related party transactions, and properly
disclose relevant information. Effective remedies shall be taken as soon as possible to resolve the issue of fund use by
controlling shareholder, to prevent similar cases from reoccurring, and to effectively protect the interests of the Company and
its shareholders. A settlement proposal shall be put forward by the controlling shareholder, and we would urge the company
and its controlling to effectively implement specific measures.
Guangdong Fenghua High Technology Co., Ltd.
Independent directors: Zhang Yuheng, Liu Heng, Huang Zhaojun, Ju Jianhua
August 18, 2005
65 Panel B. Examples of Agreement Opinions
EXAMPLE 1: Agreement
湖南天一科技股份有限公司独立董事
关于2008年董事、监事、高管薪酬分配预案独立意见
根据《关于在上市公司建立独立董事制度的指导意见》、《深圳证券交易所上市规则》等相关规章制度的有关规定，
作为湖南天一科技股份有限公司（以下简称“公司”）独立董事，对公司2008年董事、监事、高管薪酬分配预案发表
独立意见如下：
《湖南天一科技股份有限公司2008年董事、监事、高管薪酬分配预案》是结合目前公司生产经营实际状况，按照绩
效考核原则要求制定的，该议案的审议程序符合《公司章程》和有关法律法规的规定。
独立董事：蒋民生、李泉源、周益群
二○○八年十一月二十六日
Independent Opinions on “Year 2008 Budget Allocation for Compensation of Board of Directors, Board of
Supervisors and Senior Executives”
By Independent Directors of Hunan Tianyi Science and Technology Co., Ltd.
According to “Guiding Opinions on Establishing the Independent Director Institution in Listed Companies”, “Shenzhen
Stock Exchange Listing Rules” and other applicable rules and regulations, as independent directors of Hunan Tianyi Division
Technology Co., Ltd. (hereinafter referred to as the "Company"), we issue the following independent opinions on the
proposal “Year 2008 Budget Allocation for Compensation of Board of Directors, Board of Supervisors and Senior
Executives”:
The proposal reflects the actual operation of the Company and is in accordance with the principle of pay-for-performance.
The ratification process of this proposal follows the Articles of Incorporation of the Company and other applicable laws and
regulations.
Independent Directors: Jiang Minsheng, Li Yuanquan, Zhou Yiqun
November 26, 2008
EXAMPLE 2: Agreement
宏润建设集团股份有限公司独立董事关于公司重大关联交易的独立意见
作为宏润建设集团股份有限公司独立董事，根据中国证监会《关于在上市公司建立独立董事制度的指导意见》
等有关规定，对公司发生的重大关联交易事项，基于独立判断立场，发表如下意见：
宏润建设集团股份有限公司于2009 年4 月22 日召开第五届董事会第二十五次会议，会议就追认审议公司一项
关联交易作出决议。
2008年6月，公司与宁波象山港国际大酒店有限公司签订工程施工补充合同，公司承接象山港国际大酒店扩建
工程，合同总价3,000万元，定价依据是通过投标方式按市场价格定价。工程建筑面积8,640平方米，施工期为335天。
我们认为：
1、上述关联交易的追认审议、决策程序符合《公司法》、《证券法》、《深圳证券交易所股票上市规则》等法律
法规和规章及《公司章程》的有关规定。
2、上述关联交易适应公司业务需要，体现了公允原则，对中小股东是公平的，没有侵害其他股东权益，符合上市
公司利益。
独立董事：王祖龙、丁福生、范松林
2009 年4 月22 日
Independent Opinions on Material Related Party Transaction
By Independent Directors of Hongrun Construction Group Co., Ltd.
According to the China Securities Regulatory Commission’s “Guiding Opinions on Establishing the Independent Director
Institution in Listed Companies”, as independent directors of Hongrun Construction Group Co., Ltd., we issue the following
independent opinions on the Company’s material related party transaction based on our independent judgment:
66 Hongrun Construction Group Co., Ltd. held the Fifth meeting of the twenty-fifth Board of Directors on April 22, 2009, the
meeting ratified a material related party transaction.
In June 2008, the Company signed a supplementary contract with Ningbo Xiangshan Harbor International Hotel Co., Ltd: the
Company is to undertake the expansion project of Xiangshan Harbor International Hotel, the value of the contract is 30
million CNY, priced based on arms-length terms. The construction area is 8,640 square meters, and the construction period is
335 days.
We believe that:
1. The related party transaction’s ratification process is in accordance with the Company Law, the Securities Law, Shenzhen
Stock Exchange Listing Rules, other applicable laws and regulations and relevant provisions of the company’s Articles of
Incorporation.
2. The related transaction reflects the Company’s growth demand and the principle of fairness for medium and small
shareholders. It does not infringe the interests of other shareholders, and is in accordance with the general interest of the
listed company.
Independent Directors: Wang Zulong, Ding Fusheng, Fan Songlin
April 22, 2009
67