The effect of Guanxi culture on the voting of independent directors: Evidence from China

Abstract The effect of formal institutions on the monitoring behavior of independent directors has been recognized, but knowledge of informal institutions, which can help explain how independent directors act in different social and cultural environments, is lacking. Based on the conformity theory, we investigated the influence of regional guanxi culture, a new informal institution, on directors' voting behavior. We found that the likelihood of independent directors casting a dissenting vote was lower when they were appointed to firms located in regions with an intense guanxi culture. The specific guanxi culture of the locations in which independent directors reside had a negatively moderating effect on the relationship between the firms' guanxi culture and the likelihood of their dissenting votes. In addition, independent directors who had dissented before departing a firm obtained fewer future directorships in local provinces with intense guanxi cultures. We argue that directors adapt to maintain their interpersonal relationships when the guanxi culture is intense, leading to a weaker monitoring effect and less independence.