Department of Accountancy and Law
Using earnings announcement events made by group member firms in Hong Kong, this study examines the governance role of boards of directors in curbing propping activities within family business groups. We find that earnings released by group member firms affect the stock prices of their nonannouncing group peers in a manner consistent with intragroup propping. More importantly, this effect is less pronounced when the announcing firms have a larger board or a board with a higher proportion of independent directors, but more pronounced when they have an executive director from their controlling families acting as board chairperson. Furthermore, the monitoring effect of boards of directors is strengthened for firms subject to new regulations increasing board power. Our results suggest that board oversight can mitigate propping activities.
Source Publication Title
This is the peer reviewed version of the following article: Cheung, Yan-Leung, In-Mu Haw, Weiqiang Tan, and Wenming Wang. "Board structure and intragroup propping: Evidence from family business groups in Hong Kong." Financial Management 43.3 (2014): 569-601, which has been published in final form at http://dx.doi.org/10.1111/fima.12034. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Link to Publisher's Edition
Cheung, Yan-Leung, In-Mu Haw, Weiqiang Tan, and Wenming Wang. "Board structure and intragroup propping: Evidence from family business groups in Hong Kong." Financial Management 43.3 (2014): 569-601.