Board independence, CEO succession and the scope of strategic change: Empirical research on the effectiveness of independent directors
Abstract
Purpose
This paper aims to examine the effectiveness of independent directors based on the perspective of strategic control.
Design/methodology/approach
This is an empirical study carried out between 2007 and 2012 based on a sample of Chinese A-share-listed companies.
Findings
The results indicate that the departure of a CEO provides conditions for the new CEO to become empowered to carry out strategic change. The behavior of a new CEO results in the phenomenon of “a new broom sweeps clean” and increases the scope of strategic change. In addition, the results indicate that the board’s independence negatively moderates the relationship between the CEO’s succession and the scope of strategic change, and that independent directors are effective in supervising risk-taking behavior on the part of the CEO which ultimately results in damaging company performance.
Practical implications
The corporate internal and external supervisory mechanisms should be improved during the process of succession of a new CEO, and the effectiveness of the supervision of board directors should also be strengthened during the implementation of the strategic process of a new CEO.
Originality/value
Previous research on the effectiveness of independent directors mostly focuses on financial control, with a single leap from independent directors to corporate performance, which neglects the strategic control of independent directors. From the micro perspective of the strategic control process as a means of discussing the independent directors’ watchdog role, this paper extends and enriches the research on “the effectiveness of independent directors”.
Keywords
Acknowledgements
Supported by the Program for Changjiang Scholars and Innovative Research Team in University (IRT0926); the Major Project of National Natural Science Foundation of China “Researches on Transnational Governance and Governance Evaluation of the Chinese Business Groups” (71132001) and the Major Project of National Social Science Foundation of China “Study of Promoting Corporate Governance in State-owned Financial Institutes” (10ZD&035).
This paper is originally published in Chinese as follows: Li, Wei’an and Xu, Jian, “Board’s independence, CEO succession and the scope of strategic change: an empirical research on the effectiveness of independent directors”, Nankai Business Review, 2014, Vol. 17 No. 1, pp. 4-13.
Citation
Li, W. and Xu, J. (2014), "Board independence, CEO succession and the scope of strategic change: Empirical research on the effectiveness of independent directors", Nankai Business Review International, Vol. 5 No. 3, pp. 309-325. https://doi.org/10.1108/NBRI-05-2014-0023
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited