Does board independence enhance firm value of state-owned enterprises? Evidence from India and China

• Published in: European business review Vol. 32; no. 5; pp. 785 - 800
• Main Authors: M, Thenmozhi, Sasidharan, Aghila
• Format: Journal Article
• Language: English
• Published: Bradford Emerald Publishing Limited 21-10-2020; Emerald Group Publishing Limited
• Subjects: Boards of directors; Conflicts of interest; Corporate governance; Economic development; Economic growth; Emerging markets; Executives; Hypotheses; Public enterprise; Public sector; Scandals; Stock exchanges; Stockholders; China; India; State-owned enterprise; Resource dependence theory; Corporate governance; Firm value; Board independence
• ISSN: 0955-534X; 1758-7107
• DOI: 10.1108/EBR-09-2019-0224

Purpose
This study aims to examine the effectiveness of governance in state-owned enterprises (SOEs) and explores if board independence enhances the firm value of SOEs in India and China. The study further explores the moderation impact of promoter ownership in enhancing firm value.
Design/methodology/approach
The study is confined to government-owned enterprises in India and China and is based on a sample of 53 central government-owned firms listed in National Stock Exchange of India and 110 state-owned firms listed in Shanghai Stock Exchange of China for the period 2010–2017. A fixed-effect panel regression analysis has been used to examine the effect of board independence on firm value.
Findings
The study found that board independence adds value to the SOEs in India and China and the presence of independent directors (IDs) in the board of SOEs act as better monitors of performance to protect the interest of minority shareholders. Probably, they minimize agency conflict and provide resources to the firm and management. The greater the government shareholdings, the board independence further enhances value of SOEs in India and China.
Practical implications
Compliance with guidelines on IDs in SOEs serves as an effective corporate governance mechanism and the presence of IDs can signal better firm performance. The government promoters align with the IDs in better monitoring of SOE performance.
Originality/value
The study is unique and contributes to the literature by examining the impact of board independence on firm value in the context of SOEs in India and China and also provides insight on the effect of promoter ownership on the effectiveness on board independence.