Skip to main content Accessibility help
×
×
Home

Mitigating Negative Spillovers from Categorization of Foreign-Listed Firms: The Role of Host-Country Independent Directors

  • Eugene Kang (a1) and Asda Chintakananda (a2)
Abstract

This study examines how cognitive categorization by host-country investors give rise to negative spillovers among host-country foreign-listed firms from the same home country when one of these foreign-listed firms discloses a financial reporting irregularity. This study further examines how attributes of host-country independent directors mitigate such negative spillover effects through signaling fulfilment of their fiduciary duties. Our results based on Chinese foreign-listed firms on the Singapore Stock Exchange from 2007–2014 reveal that host-country independent directors increase spillover effects among foreign-listed Chinese firms from financial reporting irregularities. However, such increase is attenuated when these directors signal fulfilment of their fiduciary duties through home-country, industry, or task-related experiences, and the observed mitigating effect is stronger when they possess a combination of these experiences.

本研究探讨了当一家外国上市公司披露财务报告违规行为时,东道国投资者的认知分类如何引起来自同一母国在东道国上市的外国公司的负面溢出效应。研究进一步探讨了东道国独立董事的属性如何通过释放信号履行其受托责任来减轻这种负面的溢出效应。我们基于2007-2014年在新加坡证券交易所上市的中国外资上市公司的研究结果显示,东道国独立董事会增加来自中国的上市公司的财务报告违规行为的溢出效应。然而,当这些董事通过母国、行业或职业相关的经验表明他们的信托义务的履行时,这种增加会减弱,并且当他们拥有这些经验的组合时观察到的减轻影响更强。

В этом исследовании рассматривается, как когнитивная категоризация со стороны инвесторов из принимающей страны приводит к негативным побочным эффектам для иностранных компаний из одной и той же страны, когда одна из этих иностранных компаний нарушает финансовую отчетность. В данной работе также изучается, какие качества независимых директоров в принимающей стране нивелируют негативные побочные эффекты, благодаря выполнению фидуциарных обязанностей. На основании данных из китайских компаний, зарегистрированных на Сингапурской фондовой бирже в период 2007–2014 годов, делается вывод о том, что независимые директора в принимающей стране способствуют усилению побочных эффектов среди китайских компаний из-за нарушений финансовой отчетности. Тем не менее, такой эффект ослабляется, когда эти директора сигнализируют о выполнении своих фидуциарных обязанностей в том случае, если они обладают опытом, связанным со страной происхождения, отраслью или задачами, при этом наблюдаемое воздействие усиливается, когда они обладают комбинацией этих качеств.

Copyright
Corresponding author
Corresponding author: Asda Chintakananda (asda.chi@nida.ac.th)
Footnotes
Hide All

Accepted by: Senior Editor Jing Li

Footnotes
References
Hide All
Aaker, D. A., & Jacobson, R. 1987. The role of risk in explaining differences in profitability. Academy of Management Journal, 30(2): 277296.
Abada, D., Encarnación Lucas-Pérezb, M., Minguez-Verab, A., & Yagüeb, J. 2017. Does gender diversity on corporate boards reduce information asymmetry in equity markets? Business Research Quarterly, 20(3): 192205.
Aggarwal, R., Erel, I., Stulz, R., & Williamson, R. 2009. Differences in governance practice between U.S. and foreign firms: Measurement, causes, and consequences. Review of Financial Studies, 22(8): 31313169.
Agrawal, A., & Chadha, S. 2005. Corporate governance and accounting scandals. Journal of Law & Economics, 48(2): 371406.
Aguilera, R. V., Filatotchev, I., Gospel, H., & Jackson, G. 2008. An organizational approach to comparative corporate governance: Costs, contingencies, and complementarities. Organization Science, 19(3): 475492.
Aguilera, R. V., & Jackson, G. 2010. Comparative and international corporate governance. Academy of Management Annals, 4(1): 485556.
Aiken, L. S., & West, S. G. 1991. Multiple regression: Testing and interpreting interactions. Newbury Park, CA: Sage.
Alam, Z. S., Chen, M. A., Ciccotello, C. S., & Ryan, H. E. 2014. Does the location of directors matter?: Information acquisition and board decisions. Journal of Financial and Quantitative Analysis, 49(1): 131164.
Apostolou, B. A., Hassell, J. M., Webber, S. A., & Sumners, G. E. 2001. The relative importance of management fraud risk factors. Behavioral Research in Accounting, 13(1): 124.
Arora, P., & Dharwadkar, R. 2011. Corporate governance and corporate social responsibility (CSR): The moderating roles of attainment discrepancy and organization slack. Corporate Governace International Review, 19(2): 136152.
Baker, W. E., & Faulkner, R. R. 1991. Role as resource in the Hollywood film industry. American Journal of Sociology, 97(2): 279309.
Barberis, N., & Shleifer, A. 2003. Style investing. Journal of Financial Economics, 68(2): 161199.
Bargh, J. A. 1992. The ecology of automaticity: Toward establishing the conditions needed to produce automatic processing effects. American Journal of Psychology, 105(2): 181199.
Bargh, J. A. 1997. The automaticity of everyday life. In Wyer, R. S. J. (Ed.), The automaticity of everyday life: Advances in social cognition: 161. Mahwah, NJ: Erlbaum.
Barnett, M., & Hoffman, A. 2008. Beyond corporate reputation: Managing reputational interdependence. Corporate Reputation Review, 11(1): 19.
Barnett, M., & King, A. 2008. Good fences make good neighbors: A longitudinal analysis of an industry self-regulatory institution. Academy of Management Journal, 51(6): 11501170.
Baucus, M. S., & Near, J. P. 1991. Can illegal corporate behavior be predicted? An event history analysis. Academy of Management Journal, 34(1): 936.
Beasley, M. S. 1996. An empirical analysis of the relation between the board of director composition and financial statement fraud. The Accounting Review, 71(4): 443465.
Bell, R. G., Filatotchev, I., & Aguilera, R. V. 2014. Corporate governance and investors’ perceptions of foreign IPO value: An institutional perspective. Academy of Management Journal, 57(1): 301320.
Bell, R. G., Moore, C. B., Filatotchev, I., & Rasheed, A. A. 2012. Foreign IPO capital market choice: Understanding the institutional fit of corporate governance. Strategic Management Journal, 33(8): 914937.
Bhagat, S., Bolton, B., & Romano, R. 2008. The promise and peril of corporate governance indices. Columbia Law Review, 108(8): 18031882.
Bierstaker, J. L. 2009. Differences in attitudes about fraud and corruption across cultures: Theory, examples and recommendations. Cross Cultural Management, 16(3): 241250.
Blau, B. M., DeLisle, J. R., & Price, S. M. 2015. Do sophisticated investors interpret earnings conference call tone differently than investors at large? Evidence from short sales. Journal of Corporate Finance, 31: 203219.
Bourdeau, B., Cronin, J., & Voorhees, C. 2007. Modeling service alliances: An investigation of the spillover effects of partner performance on customers’ perceptions of a service partnership. Strategic Management Journal, 28(6): 609622.
Boyer, B. H. 2011. Style-related comovement: Fundamentals or labels? Journal of Finance, 66(1): 307332.
Bris, A., & Cabolis, C. 2008. The value of investor protection: Firm evidence from cross-border mergers. Review of Financial Studies, 21(2): 605648.
Carter, R. B., & Manaster, S. 1990. Initial public offerings and underwriter reputation. Journal of Finance, 45(4): 10451067.
Certo, S. T. 2003. Influencing initial public offering investors with prestige: Signaling with board structures. Academy of Management Review, 28(3): 432446.
Choi, J. J., Park, S. W., & Yoo, S. S. 2007. The value of outside directors: Evidence from corporate governance reform in Korea. Journal of Financial and Quantitative Analysis, 42(4): 941962.
Cogman, D., & Orr, G. 2013. How they fell: The collapse of Chinese cross-border listings. McKinsey Quarterly (December).
Cohen, B. D., & Dean, T. J. 2005. Information asymmetry and investor valuation of IPOs: Top management team legitimacy as a capital market signal. Strategic Management Journal, 26(7): 683690.
Cohen, L., Frazzini, A., & Malloy, C. J. 2012. Hiring cheerleaders: Board appointments of ‘Independent’ directors. Management Science, 58(6): 10391058.
Colombo, M. G., & Grilli, L. 2005. Founders’ human capital and the growth of new technology-based firms: A competence-based view. Research Policy, 34(6): 795816.
Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. 2011. Signaling theory: A review and assessment. Journal of Management, 37(1): 3967.
Cowan, A. R. 1992. Nonparametric event study tests. Review of Quantitative Finance and Accounting, 2(4): 343358.
Dahya, J., Dimitrov, O., & McConnell, J. 2008. Dominant shareholders, corporate boards, and corporate value: A cross-country analysis. Journal of Financial Economics, 87(1): 73100.
David, P., Kochhar, R., & Levitas, E. 1998. The effect of institutional investors on the level and mix of CEO compensation. Academy of Management Journal, 41(2): 200208.
DeFond, M. L., Hann, R. N., & Hu, X. 2005. Does the market value financial expertise on audit committees of boards of directors? Journal of Accounting Research, 43(2): 153193.
Dhaliwal, D., Naiker, V., & Navissi, F. 2010. The association between accruals quality and the characteristics of accounting experts and mix of expertise on audit committees. Contemporary Accounting Research, 27(3): 787827.
Dutton, J. E., & Jackson, S. E. 1987. Categorizing strategic issues: Links to organizational action. Academy of Management Review, 12(1): 7690.
Fang, Y., Wade, M., Delios, A., & Beamish, P. W. 2007. International diversification, subsidiary performance, and the mobility of knowledge resources. Strategic Management Journal, 28(10): 10531064.
Fernandes, N., & Giannetti, M. 2014. On the fortunes of stock exchanges and their reversals: Evidence from foreign listings. Journal of Financial Intermediation, 23(2): 157176.
Fich, E. M., & Shivdasani, A. 2006. Are busy boards effective monitors? Journal of Finance, 61(2): 689724.
Fich, E. M., & Shivdasani, A. 2007. Financial fraud, director reputation, and shareholder wealth. Journal of Financial Economics, 86(2): 306336.
Filatotchev, I., & Bishop, K. 2002. Board composition, share ownership, and ‘underpricing’ of U.K. IPO firms. Strategic Management Journal, 23(10): 941955.
Filatotchev, I., Zhang, X., & Piesse, J. 2011. Multiple agency perspective, family control, and private information abuse in an emerging economy. Asia Pacific Journal of Management, 28(1): 6993.
Finkle, T. A. 1998. The relationship between boards of directors and initial public offerings in the biotechnology industry. Entrepreneurship Theory and Practice, 22(3): 529.
Firth, M., Rui, O. M., & Wu, W. 2011. Cooking the books: Recipes and costs of falsified financial statements in China. Journal of Corporate Finance, 17(2): 371390.
Ghosh, C., He, F., & Zhou, H. 2015. Can globalized board room help with cross-listing? The effects of U.S. directors on cross-listed foreign firms. European Financial Management Association, Amsterdam.
Giannetti, M., Liao, G., & Yu, X. 2015. The brain gain of corporate boards: Evidence from China. Journal of Finance, 70(4): 16291682.
Goerzen, A., & Beamish, P. W. 2007. The Penrose effect: ‘Excess’ expatriates in multinational enterprises. Management International Review, 47(2): 221239.
Gore, A. K., Matsunaga, S., & Yeung, P. E. 2011. The role of technical expertise in firm governance structure: Evidence from Chief Financial Officer contractual incentives. Strategic Management Journal, 32(7): 771786.
Granqvist, N., Grodal, S., & Woolley, J. L. 2013. Hedging your bets: Explaining executives' market labeling strategies in nanotechnology. Organization Science, 24(2): 395413.
Grinblatt, M., & Keloharju, M. 2001. How distance, language, and culture influence stockholdings and trades. The Journal of Finance, 56(3): 10531073.
Gruber, M., MacMillan, I. C., & Thompson, J. D. 2012. From minds to markets: How human capital endowments shape market opportunity identification of technology start-ups. Journal of Management, 38(5): 14211449.
Gulati, R., & Higgins, M. C. 2003. Which ties matter when? The contingent effects of interorganizational partnerships on IPO success. Strategic Management Journal, 27(2): 127144.
Hastie, R. 1983. Social inference. Annual Review of Psychology, 34(1): 511542.
Henderson, B. J., Jegadeesh, N., & Weisbach, M. S. 2006. World markets for raising new capital. Journal of Financial Economics, 82(1): 63101.
Higgins, M. C., & Gulati, R. 2003. Getting off to a good start: The effects of upper echelon affiliations on underwriter prestige. Organization Science, 14(3): 244263.
Higgins, M. C., & Gulati, R. 2006. Stacking the deck: The effects of top management backgrounds on investor decisions. Strategic Management Journal, 27(1): 125.
Hillman, A. J. 2005. Politicians on the board of directors: Do connections affect the bottom line? Journal of Management, 31(3): 464481.
Hillman, A. J., & Dalziel, T. 2003. Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3): 383396.
Homstrom, B. 1999. Managerial incentive problems: A dynamic perspective. Review of Economic Studies, 66(1): 162182.
Johnson, J. L., Daily, C. M., & Ellstrand, A. E. 1996. Boards of directors: A review and research agenda. Journal of Management, 22(3): 409438.
Kang, E. 2008. Director interlocks and spillover effects of reputational penalties from financial reporting fraud. Academy of Management Journal, 51(3): 537555.
Kang, J.-K., & Kim, J.-M. 2010. Do foreign investors exhibit a corporate governance disadvantage? An information asymmetry perspective. Journal of International Business Studies, 41(8): 14151438.
Kaplan, S. 2011. Research in cognition and strategy: Reflections on two decades of progress and a look to the future Journal of Management Studies, 48(3): 665695.
Kennedy, M. 2008. Getting counted: Markets, media, and reality. American Sociological Review, 73(6): 270295.
King, A., Lenox, M., & Barnett, M. 2002. Strategic responses to the reputation commons problem. In Hoffman, A. & Ventresca, M. (Eds.), Organizations, policy and the natural environment: Institutional and strategic perspectives: 393406. Stanford, CA: Stanford University Press.
Kor, Y. Y., & Sundaramurthy, C. 2009. Experience-based human capital and social capital of outside directors. Journal of Management, 35(4): 9811006.
Kostova, T., & Zaheer, S. 1999. Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Review, 24(1): 6481.
Krishnan, G. V., & Visvanathan, G. 2008. Does the SOX definition of an accounting expert matter? The association between audit committee directors' accounting expertise and accounting conservatism. Contemporary Accounting Research, 25(3): 827858.
Kumar, A. 2009. Dynamic style preferences of individual investors and stock returns. Journal of Financial and Quantitative Analysis, 44(3): 607640.
Lickel, B., Hamilton, D. L., Wieczorlowla, G., Lewis, A., Sherman, S. J., & Uhles, A. N. 2000. Varieties of groups and the perception of group entitativity. Journal of Personality and Social Psychology, 78(2): 223246.
Logan, G. D. 1992. Attention and preattention in theories of automaticity. American Journal of Psychology, 105(2): 317339.
Ma, J., & Khanna, T. 2016. Independent directors' dissent on boards: Evidence from listed companies in China. Strategic Management Journal, 37(8): 15471557.
Macrae, C. N., & Bodenhausen, G. V. 2000. Social cognition: Thinking categorically about others. Annual Review of Psychology, 51: 93120.
Masulis, R. W., Wang, C., & Xie, F. 2012. Globalizing the boardroom–The effects of foreign directors on corporate governance and firm performance. Journal of Accounting and Economics, 53(3): 527554.
Mayer, K. 2006. Spillovers and governance: An analysis of knowledge and reputational spillovers in information technology. Academy of Management Journal, 49(1): 6984.
McMahon, D. 2011. Chinese companies: No longer darlings. The Wall Street Journal, June 10: C1.
McWilliams, A., & Siegel, D. 1997. Event studies in management research: Theoretical and empirical issues. Academy of Management Journal, 40(3): 626657.
Melvin, M., & Valero, M. 2009. The dark side of international cross-listing: Effects on rival firms at home. European Financial Management, 15(1): 6691.
Mervis, C. B., & Rosch, E. 1981. Categorization of natural objects. Annual Review of Psychology, 32: 89115.
Moore, C. B., Bell, R. G., & Filatotchev, I. 2010. Institutions and foreign IPO firms: The effects of ‘home’ and ‘host’ country institutions on performance. Entrepreneurship Theory and Practice, 34(3): 469490.
Oxelheim, L., & Randøy, T. 2003. The impact of foreign board membership on firm value. Journal of Banking & Finance, 27(12): 23692392.
Palmrose, Z.-V., Richardson, V. J., & Scholz, S. 2004. Determinants of market reactions to restatement announcements. Journal of Accounting and Economics, 37(1): 5989.
Park, T.-J., Lee, Y., & Song, K. R. 2014. Informed trading before positive vs. negative earnings surprises. Journal of Banking & Finance, 49: 228241.
Peng, L., & Xiong, W. 2006. Investor attention, overconfidence and category learning. Journal of Financial Economics, 80(3): 563602.
Peng, M. W., & Blevins, D. P. 2012. Why do Chinese firms cross-list in the United States? In Rasheed, A. A. & Yoshikawa, T. (Eds.), The convergence of corporate governance: Promise and prospects: 249265. UK: Palgrave Macmillan.
Porac, J. F., & Thomas, H. 1994. Cognitive categorization and subjective rivalry among retailers in a small city. Journal of Applied Psychology, 79(1): 5466.
Porac, J. F., Thomas, H., & Baden-Fuller, C. 2011. Competitive groups as cognitive communities: The case of Scottish knitwear manufacturers revisited. Journal of Management Studies, 48(3): 646664.
Quattrone, G. A., & Jones, E. E. 1980. The perception of variability within in-groups and out-groups: Implications for the law of small numbers. Journal of Personality and Social Psychology, 38(1): 141152.
Rediker, K. J., & Seth, A. 1995. Boards of directors and substitution effects of alternative governance mechanisms. Strategic Management Journal, 16(2): 8599.
Rosch, E. 1975. Cognitive reference points. Cognitive Psychology, 7(4): 532547.
Shaver, J. M., Mitchell, W., & Yeung, B. 1997. The effect of own-firm and other-firm experience on foreign direct investment survival in the United States, 1987–1992. Strategic Management Journal, 18(10): 811824.
Shaw, J. B. 1990. A cognitive categorization model for the study of intercultural management. Academy of Management Review, 15(4): 626645.
Spence, M. 1973. Job market signalling. Quarterly Journal of Economics, 87(3): 355374.
Staw, B. M., & Szwajkowski, E. 1975. The scarcity-munificence component of organizational environments and the commission of illegal acts. Administrative Science Quarterly, 20(3): 345354.
Stern, I., & Westphal, J. D. 2010. Stealthy footsteps to the boardroom: Executives’ backgrounds, sophisticated interpersonal influence behavior, and board appointments. Administrative Science Quarterly, 55(2): 278319.
Stuart, T. E., Hoang, H., & Hybels, R. C. 1999. Interorganizational endorsements and the performance of entrepreneurial ventures. Administrative Science Quarterly, 44(2): 315349.
Suchman, M. C. 1995. Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3): 571610.
Surroca, J., Tribo, J., & Zahra, S. 2013. Stakeholder pressure on MNEs and the transfer of socially irresponsible practices to subsidiaries. Academy of Management Journal, 56(2): 549572.
Tirole, J. 1996. A theory of collective reputations with applications to the persistence of corruption and to firm quality. Review of Economic Studies, 63(1): 122.
Vergne, J.-P. 2012. Stigmatized categories and public disapproval of organizations: A mixed methods study of the global arms industry, 1996–2007. Academy of Management Journal, 55(5): 10271052.
Wade, J., O'Reilly, C. I., & Chandratat, I. 1990. Golden parachutes: CEOs and the exercise of social influence. Administrative Science Quarterly, 35(4): 587603.
Walsh, J. P., & Seward, J. K. 1990. On the efficiency of internal and external corporate control mechanisms. Academy of Management Review, 15(3): 421458.
Walters, B. A., Kroll, M., & Wright, P. 2010. The impact of TMT board member control and environment on post-IPO performance. Academy of Management Journal, 53(3): 572595.
Westphal, J. D., & Stern, I. 2006. The other pathway to the boardroom: Interpersonal influence behavior as a substitute for elite credentials and majority status in obtaining board appointments Administrative Science Quarterly, 51(2): 169204.
Westphal, J. D., & Zajac, E. J. 1997. Defections from the inner circle: Social exchange, reciprocity, and the diffusion of board independence in U.S. corporations. Administrative Science Quarterly, 42(1): 161183.
Westphal, J. D., & Zajac, E. J. 1998. The symbolic management of stockholders: Corporate governance reforms and shareholder reactions. Administrative Science Quarterly, 43(1): 127153.
White, H. 1980. A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48: 817830.
Yahya, Y. 2011. Another S-chip suspended over accounts. The Straits Times, March 25: C30.
You, L., Parhizgari, A., & Srivastava, S. 2012. Cross-listing and subsequent delisting in foreign markets. Journal of Empirical Finance, 19(2): 200216.
Zahra, S. A., Priem, R. L., & Rasheed, A. A. 2005. The antecedents and consequences of top management fraud. Journal of Management, 31(6): 803828.
Zavyalova, A., Pfarrer, M., Reger, R., & Shapiro, D. 2012. Managing the message: The effects of firm actions and industry spillovers on media coverage following wrongdoing. Academy of Management Journal, 55(5): 10791101.
Zhang, Y., & Wiersema, M. F. 2009. Stock market reaction to CEO certification: The signaling role of CEO background. Strategic Management Journal, 30(7): 693710.
Zuckerman, E. W. 1999. The categorical imperitive: Securities analysts and the illegitimacy discount. American Journal of Sociology, 104(5): 13981438.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Management and Organization Review
  • ISSN: 1740-8776
  • EISSN: 1740-8784
  • URL: /core/journals/management-and-organization-review
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed