Board structure and intragroup propping: Evidence from family business groups in Hong Kong

Yan Leung Stephen CHEUNG, In-Mu HAW, Weiqiang TAN, Wenming WANG

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8 Citations (Scopus)

Abstract

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. Copyright © 2014 Financial Management Association International.
Original languageEnglish
Pages (from-to)569-601
JournalFinancial Management
Volume43
Issue number3
Early online dateAug 2013
DOIs
Publication statusPublished - 2014

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Propping
Board structure
Hong Kong
Family business
Business groups
Board of directors
Oversight
Independent directors
Peer group
Stock prices
Governance
Monitoring
Proportion
Earnings announcements

Citation

Cheung, Y.-L., Haw, I.-M., Tan, W., & Wang, W. (2014). Board structure and intragroup propping: Evidence from family business groups in Hong Kong. Financial Management, 43(3), 569-601.