This paper investigates how institutional environment like property rights protection influences the size and composition of corporate boards, and further, how board structure impacts firm performance in China. Using a World Bank survey of 2400 firms across 18 Chinese cities, I find robust evidence that weaker helping hand from the government is associated with a higher number and proportion of outsiders on the board, after controlling for the effects of firm complexity, growth opportunities, CEO characteristics, ownership, and other variables. The instrumental variables estimation suggests that this relationship is causal. Furthermore, the results show that when firms are operating in a weak property rights environment, more outsiders improve corporate performance.

JEL class...[ Read more ]

This paper investigates how institutional environment like property rights protection influences the size and composition of corporate boards, and further, how board structure impacts firm performance in China. Using a World Bank survey of 2400 firms across 18 Chinese cities, I find robust evidence that weaker helping hand from the government is associated with a higher number and proportion of outsiders on the board, after controlling for the effects of firm complexity, growth opportunities, CEO characteristics, ownership, and other variables. The instrumental variables estimation suggests that this relationship is causal. Furthermore, the results show that when firms are operating in a weak property rights environment, more outsiders improve corporate performance.

JEL classification: G34; G3; K22; P3

Keywords: Corporate Governance; Property rights; Institutions; Board size; Board composition; Corporate performance; Corporate law