Perceived Institutional Pressure and the Resign of Independent Directors with Official Identity: An Empirical Study Based on the Document No.18 of the Organization Department of the Central Committee of the CPC

Xin Yu, Deng Xiaofei, Teng Fei

Journal of Finance and Economics Vol. 42, Issue 08, pp. 121 - 132 (2016)  DOI:10.16538/j.cnki.jfe.2016.08.011

Abstract

The current literature argues that the characteristics of officials (e.g. tenure, cross-district switching mechanism, turnover, etc.) have important impacts on local economic growth and corporate financing behavior. However, owing to the difficulty in accurate measurement and a lack of proper research context, little investigation with respect to perceived institutional pressure of government officials has been done. As an exogenous policy shock, the issuance and implementation of the Document No.18 of the Organization Department of the Central Committee of the CPC provide a rare research opportunity. Using hand-collected data of the resign of independent directors with official identity since the issuance of the Document No.18, this paper empirically investigates the impacts of administrative rank, firm ownership type, and regional political intensity on the resign timing of independent directors with official identity from a perspective of perceived institutional pressure. It finds that independent directors with official identity who have higher administrative ranks, serve for state-owned listed firms, and work in dense regional political intensity,have more profound & keen perceived institutional pressure and resign sooner, showing higher sensitivity to institutional pressure. It is thus clear that corporate operators should deeply think the uncertainty and rigidity of political connections, and recognize possible potential risks. Besides, it also investigates the moderating effect of external institutional environments on the behavioral characteristics of the resign of independent directors with official identity, and finds that sound institutional environments help to enhance the policy execution efficiency.

Keywords

perceived institutional pressure; the resign of independent directors with official identity; political connection; the Document No.18 of the Organization Department of Central Committee of the CPC