LAUSR

Using novel data on independent directors’ opinions in China, we investigate the stock and labor market effects prompted by independent directors publicly saying ‘no’ to major board decisions. We find that the market reacts negatively to modified directors’ opinions, but positively toward the firms interlocked with the directors who said ‘no’. We further find substantial turnover and decline in board seats after independent directors issue modified opinions. Overall, we identify a dilemma in China whereby the labor market does not reward vigilant directors who have stood up to firm insiders, even though investors add a premium to effective board monitoring.