Independent directors’ status and R&D: a study based on Chinese cultural background

Abstract

Independent directors are important corporate decision participants and makers. Based on the Chinese cultural background, this paper interprets the listing order of independent directors as independent directors’ status, exploring their influence on the corporate research and development (R&D) behavior. This paper studies A-share listed firms in China from 2008 to 2018 as the sample. The main method is ordinary least square (OLS) regression. We also use other methods to deal with endogenous problems, such as the firm fixed effect method, change model method, two-stage instrumental variable method, and Heckman two-stage method. Findings: (1) Higher independent directors’ status attribute to more effective exertion of supervision and consultation function, and positively enhance the corporate R&D investment. The increase of the independent director’ status by one standard deviation will increase the R&D investment by 4.6%. (2) The above effect is more influential in firms with stronger traditional culture atmosphere, higher information opacity and higher performance volatility. (3) High-status independent directors promote R&D investment by improving the scientificity of R&D evaluation and reducing information asymmetry. (4) The enhancing effect of independent director’ status on R&D investment is positively associated with the firm’s patent output and market value. This paper contributes to understanding the relationship between the independent directors’ status and their duty execution from an embedded cultural background perspective. The findings of the study enlighten the improvement of corporate governance efficiency and the healthy development of the capital market.

Keywords

• cultural background
• independent directors’ status
• r&d investment
• r&d evaluation
• information asymmetry