Original Article

China Accounting and Finance Review

, 15:7

First online:

Open Access This content is freely available online to anyone, anywhere at any time.


  • Hao LiuAffiliated withInstitute of Accounting and Finance, Shanghai University of Finance and Economics Email author 
  • , Liangyu ZhaoAffiliated withSchool of Accountancy, Shanghai University of Finance and Economics
  • , Fenfen LiuAffiliated withSchool of Accountancy, The Chinese University of Hong Kong

Private Benefits of Control and Dynamics of Board Structure Adjustment - Evidence from the CSRC’s Compulsory Introduction of Independent Directors


Building upon the property rights theory, this paper develops a theoretical framework that shows that in emerging markets where large shareholders’ shares are non-transferable and the legal protection for property rights is weak, large shareholders’ dominance over the board of directors is endogenously determined by their pursuit of benefits of control. We use a natural experiment, the compulsory introduction of independent directors in August 2001 by the China Securities Regulatory Commission (CSRC), to empirically test the effect of large shareholders’ benefits of control on the dynamics of board structure adjustment. Consistent with our argument that large shareholders minimise monitoring from independent directors, who should comprise at least a third of board members according to the CSRC’s requirement, we make the following findings: (1) Firms with more large shareholders’ private benefits are more likely to decrease the number of non-independent directors to meet the requirement; (2) such firms are also more likely to delay compliance; and (3) descriptive statistics show that directors from the largest shareholder make up a higher proportion of a board after the adjustment, thus increasing the largest shareholder’s control over the board. The policy implication of this paper is that the corporate governance of Chinese listed firms is largely determined by large shareholders’ pursuit of private benefits. However, one rule does not fit all firms.


Board Structure Private Benefits of Control Endogenous Determinant