Penalties for Information Disclosure Violations and Independent Directors' Dissenting Behaviors at Director-Interlocked Firms: Spillover Effects Through Director Networks

Exploiting the mandatory disclosure requirement for independent directors' votes in Chinese listed firms, this study investigates how penalties for information disclosure violations influence the dissenting behaviors of independent directors at firms with director interlocks. The results suggest penalties for information disclosure violations may encourage independent directors to express dissent on board proposals that are raised by director-interlocked firms. Further analyses show that as the severity of penalties increase, independent directors become more likely to express dissent, particularly about information disclosure issues. This dissenting behavior significantly improves the director-interlocked firm's information disclosure quality and reduces the likelihood of being penalized for information disclosure violations. Finally, cross-sectional tests show that interlocked independent directors and independent directors with a background in finance, a greater reputation, and more power are more likely to dissent.