Directors’ Incentives from Potential Penalties: Evidence from Their Voting
利用中国资本市场的独特数据，研究发现独立董事在观察到网络内其他董事因失职受罚后，更可能对管理层提案投反对票，且该效应持久，表明处罚风险的凸显性是激励董事的重要因素。
What makes independent directors perform their duty? One possible reason is that they are concerned about being punished if they do not fulfill their duties diligently. Using unique features of the Chinese capital market, we estimate the extent to which independent directors’ subjective perceptions of penalty risk affect their voting on proposals. Our results suggest that they are more likely to vote against management after observing how another director in their board network received a regulatory penalty related to negligence. This effect is long lasting and stronger if the observing and penalized directors share personal characteristics and if the observing director is at a firm that is more likely to be penalized. These results provide novel evidence suggesting that the salience of penalty risk is an important factor motivating directors, which provides regulators with a powerful and cost-effective tool to improve firms’ governance. This paper was accepted by Kay Giesecke, finance. Funding: C. Lin acknowledges financial support from the National Social Science Fund of China Major Project [Grant 24&ZD094]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.06141 .