We provide the first comprehensive and robust evidence on the relationship between board independence and firm performance in China. We find that independent directors have an overall positive effect on firm operating performance in China. Our findings are robust to a battery of tests, including endogeneity checks using instrumental variables, the dynamic generalized method of moments estimator, and the difference-in-differences method. The positive relationship between board independence and firm performance is stronger in government-controlled firms and in firms with lower information acquisition costs. We also document that Chinese independent directors play an important role in constraining insider self-dealing and improving investment efficiency.

We examine the role of social ties in IPO underwriting syndicate formation and find that an investment bank is more likely to be included in the underwriting syndicate when it is connected to the IPO firm through interpersonal social ties between the respective executives and directors. These social ties generate better outcomes, consistent with a quid pro quo arrangement between the respective parties. The investment bank benefits by receiving higher compensation, a more senior role in the IPO, and greater share allocations. For the IPO firm, the presence of social ties between the IPO issuer and the chosen underwriters is associated with net wealth gains for its pre-IPO shareholders.