Accounting & Finance Brown Bag Seminar with Dr Siyang Tian, University of Sussex

Title: Politically Connected Independent Directors and Corporate Litigation Risk

Abstract:

We explore the impact of politically connected independent directors (IDs) on corporate litigation risk. Exploiting an unanticipated reform in China that mandates government officials serving as IDs to resign from listed firms, we show that their departures lead to greater litigation risk faced by the firms, including a higher likelihood of being sued and a larger financial stake in litigation. In line with a judicial interference interpretation, we find stronger effects for: 1. firms hiring IDs with higher political rank or government party officials wielding substantial judicial influence; 2. firms in provinces with lower proportions of fiscal expenditure allocated to the judicial system; 3. firms in regions with weak legal institutions, and non-state-owned enterprises. However, the increase in litigation risk shows no significant difference between firms that rely more or less on government resources, suggesting that resource dependence is not a plausible explanation for our findings. After the reform, these firms obtain more unfavourable court rulings as a defendant, confirming their heightened litigation risk.

Website: https://profiles.sussex.ac.uk/p608508-siyang-tian