Corporate Governance Deficiencies And Abnormal Departure Of Independent Directors

In recent years,the departure of independent directors has received increasing attention from all walks of life,especially from investors.at the end of 2021,implicated by the financial fraud case of Kangmei Pharmaceutical,five then-independent directors were sentenced to assume joint and several liability of 369 million yuan,resulting in a wave of independent director departures,which has attracted the attention of the whole society.The independent director system is an important element of corporate governance.In 2022,the SFC issued the Rules for Independent Directors of Listed Companies,and the following year,the General Office of the State Council issued the Opinions on Reforming the Independent Director System of Listed Companies to enhance the ability of independent directors to perform their duties and give full play to the role of independent directors.The independent director system helps alleviate agency problems,but the system has been questioned since it was introduced into China.Independent directors are selected and paid by listed companies and are often reduced to a "vase",neither dissenting nor issuing negative opinions,making it difficult for them to fulfill their supervisory duties.Therefore,the market regards the behavior of these "silent" directors as a kind of information,and the departure of independent directors from listed companies is often regarded as a negative signal.The Rules for Independent Directors of Listed Companies require that independent directors should state their reasons for leaving on their own initiative,but many of the reasons for leaving are vague and boilerplate,such as "personal reasons" and "work reasons",the authenticity of which is difficult to verify and is more like a generic excuse.The real reasons for leaving may be hidden.This paper defines the suspicious departure events that provide such reasons as abnormal departures,takes abnormal departures of independent directors of main board listed companies from 2018 to 2020 as the research object,selects corporate violations as the proxy variable of corporate governance defects,and adopts a logit model to verify the authenticity of independent directors’ departure reasons,and empirically tests whether the abnormal departure behavior of independent directors is The study finds that independent directors who leave the company irregularly are not affected by corporate governance defects.The study finds that independent directors who leave their positions irregularly take into account the increased risk of tenure due to corporate governance violations and provide false reasons for leaving to conceal their true motives for leaving.Corporate violations drive independent director departures,i.e.,companies with violations have a significantly higher probability of irregular departures of independent directors in the following year;serious violations drive independent director departures more strongly than minor violations,and the more serious the corporate violations,the more likely independent directors are to leave irregularly in the following year;the degree of marketization of the company’s location has a moderating effect,and increased marketization strengthens the effect of corporate violations on The degree of marketization in the company’s location has a moderating effect,and the increase of marketization will strengthen the positive influence of company violations on the irregular departure of independent directors.In addition,based on China’s special economic system,this paper conducted a heterogeneity analysis from the perspective of the nature of corporate property rights and the risk acceptance level of independent directors,and found that the positive effect of corporate non-compliance on the irregular departure of independent directors is more significant among private companies and independent directors with low risk acceptance level.Existing studies on the independent director system have focused more on the governance effects of independent directors and their mechanisms of action.Most of the studies on independent directors’ leaving behavior also focus on the influencing factors and economic consequences of independent directors’ leaving,and fewer studies on the reasons for independent directors’ leaving and the authenticity of the reasons.In this paper,we focus on the departures that provide "personal reasons" and "work reasons",which are not related to the company,to investigate whether these departures are driven by corporate governance deficiencies and to verify the authenticity of the reasons for departure.The study confirms the existence of false resignation reason statements by independent directors,and that the abnormal departure behavior of independent directors is affected by corporate governance deficiencies,which can be used as a window to observe the governance of listed companies and provide information to investors.The findings of this paper provide useful references for further improving the independent director system and enhancing the corporate governance of listed companies.