The Effects of Independent Non-Executive Directors (INED) on Company Performance — A Comparison of H-Shares and Red Chips Companies

Abstract

This study will examine the influence of and relationship between independent non-executive directors (INEDs) and the performance of non-state-owned enterprises (NSOEs) and state-owned enterprises (SOEs) businesses listed on the Hong Kong Stock Exchange (SEHK). It is well known and reported that the number of Chinese companies coming to Hong Kong for listing on the SEHK has increased since the first listing of H-share company Tsingtao Brewery Co Ltd (00168.HK) in 1993. As the market capitalisation and influence in Hong Kong of these companies has increased in the last 20 years, the effects of their performance have received more attention. It is important to examine whether an increase in the number of independent non-executive directors (INEDs) will influence the behavior of major shareholders and the performance of state-owned enterprises (SOEs). This study aims to assist policymakers and regulators in assessing the need for further revisions to the current INED policy. Additionally, the findings may be applicable to other emerging markets and regions around the world that feature SOEs.