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Secretary of Board of Directors and Corporate Internal Information: Evidence from Chinese Stock Market

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In 2006, the implementation of the new company law confirmed the executive status of the secretary of the board of directors for the first time in a legal sense, and also emphasized the responsibility of the secretary of the board of directors in
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  Secretary of Board of Directors and Corporate InternalInformation: Evidence from Chinese Stock Market Guanglei Zhou ∗ a , Bingwei Chen a , Yibo Chen aa Central University of Finance and Economics, Beijing, ChinaFirst Draft: October 7, 2019 ABSTRACT In 2006, the implementation of the new company law confirmed the executive status of the secretaryof the board of directors for the first time in a legal sense, and also emphasized the responsibility of the secretary of the board of directors in ”handling information disclosure affairs”. Internal controlinformation disclosure is the enterprise according to the standard of internal control evaluation of the enterprise internal control system of self-evaluation, investors judge the value of the enterprise.Can the secretary of the board of directors affect the quality of internal control information dis-closure of listed companies? The role of his personal background in the process of informationdisclosure deserves further study. Based on the empirical study of 2400 listed companies in Shang-hai and Shenzhen by using the random effect model (REM), this paper finds that the working time,shareholding situation, multi-position situation and educational background of the secretary of theboard of directors have a positive impact on the internal environment, risk assessment, control ac-tivities, information and communication, and information disclosure quality of internal supervision.However, the gender of the secretary has little impact on the quality of such information disclosure.In addition, this paper also explores state-owned enterprises and gets the same results. It can beseen that the personal background of the secretary for the President has begun to play a role andthe implementation of the secretary for the President system is gradually on the right track.JEL classification: M14, M19 . ∗ Corresponding author:  guangleizhou.cufecafd@gmail.com  I. Background and Literature The secretary of the board of directors, hereinafter referred to as the secretary to the President,is a senior executive of a listed company who is appointed by and responsible to the board of directors and is the designated contact person between the listed company and the stock exchange.External responsible for the company’s information disclosure, investor relations management; In-ternally, I was responsible for the management of equity affairs, corporate governance, equityinvestment, preparation of the board of directors and shareholders’ meeting, and guarantee thestandardized operation of the company. The new company law implemented in 2006 confirmedthe executive status of the secretary of the board of directors for the first time in a legal sense(Zhou, Li, and Zhang (2011)). Tan, Song, and Pu (2009) believed that the fundamental reason forthe executive position of secretary of board of directors in the new company law was to promoteinformation disclosure of listed companies from the perspective of corporate governance. If thesecretary can fulfill his duties, the quality of information disclosure will be significantly improved.On the other hand, it will also promote fair competition in the market. Therefore, it is believed inthis paper that the secretary to the President is somewhat related to the internal information of listed companies.In recent years, China has begun to attach importance to information disclosure of listed compa-nies. From the perspective of enterprise internal information disclosure, Verrecchia (2004) proposedthat information disclosure system can be divided into three levels: information disclosure researchbased on relevance, information disclosure research based on company decision, and information dis-closure research based on efficiency. The research on information disclosure given relevance mainlydiscusses the impact of disclosure on asset equilibrium price and trading volume. The research oninformation disclosure based on corporate decision-making discusses the discretion of managers indisclosing information. The research of information disclosure based on efficiency discusses the pri-ority of choosing the arrangement of disclosure without knowing the information in advance. Thedisclosure of internal control information is an important index of information disclosure, whichmeasures the level of internal control of enterprises. There are many factors that affect the internalcontrol of an enterprise. According to the research of Lin, Mao, and Liu (2016) on the influenceof secretary of the board of directors on company information disclosure, some background factorsof secretary of the board of directors will have certain influence on corporate governance, internalcontrol, risk control and other aspects.Therefore, previous literatures mainly discussed the influence of the secretary to the internalcontrol information from the perspective of corporate governance. However, from the perspectiveof the background information of the secretary to the President, Zhao (2011) statistically foundthat since 2009, the number of female secretaries of the board of directors has been on the rise.Linet al. (2016) found that part-time secretary to the President did not significantly improve thequality of company information disclosure compared with full-time secretary to the President. If the secretary for the President holds shares of the company, the quality of information disclosurewill be significantly improved, which may be due to the equity incentive that solves the agency2  problem to a certain extent. The higher the degree of the secretary to the President, the betterthe quality of internal information disclosure.However, Bennouri, Chtioui, Nagati, and Nekhili (2018) studied the relationship between femaleexecutives and corporate financial performance of 394 French companies from 2001 to 2010, andfound that companies with more women would have better corporate governance. Adams andFerreira (2009) found that female directors have higher attendance rate at board meetings thanmen, and women are more likely to supervise corporate governance. The authors also found thatin companies with more female directors, the change of chairman was more sensitive to changesin stock prices. In addition, Zhou et al. (2011) believed that the background information of thesecretary to the President, such as age, identity, working age, education level and part-time job,had little impact on the internal information disclosure of the company. Therefore, it is concludedthat the personal characteristics of the secretary for the President have not played a good role andthe implementation of the secretary for the President system needs to be improved. In 2006, Theimplementation of the new company law on January 1 is an ”event window”, which tests whetherthe quality of information disclosure of enterprises has changed before and after it. Zhou et al.(2011) concluded through KV model test that the quality of enterprise information disclosure afterthe ”event window” was significantly improved compared with the previous period. At the sametime, the shareholding of the secretary of the board of directors will reduce the independence of the secretary of the board of directors, not only failing to promote information disclosure, but alsocausing the problem of ”insider control”, which is not conducive to the company’s disclosure. Theidiosyncrasies of women executives and boards influence the character of boards. Hambrick andMason (1984) concluded that the personality characteristics of individuals in the board of directorshave an impact on the decision-making council of the board of directors. Jiang, Shi, and Ma (2016)found that if the identity background of the secretary to the President had or had existing financialexperience, it would have an impact on the surplus information content. Some scholars believe thatequity incentives for CEOs and other senior executives are more conducive to enterprise internalcontrol and management and enterprise information disclosure.At the same time, multiple positions and working time of senior executives also affect corporategovernance of enterprises. As for whether the executive position of secretary for the President hasa certain influence on the company’s internal control, the conclusions of different scholars are moreor less different. Based on the consideration and conclusion of the above literature, we believe thatthe background information of the secretary for the President, including gender, whether he/sheholds two jobs, work experience, financial background and age, will have an impact on the internalinformation disclosure of the company.In the following part, section II introduces the innovation of our study.3  II. Innovation A. Gaps in related research fields in China  In this paper, we will analyze the influence of different background information and personalcharacteristics of the secretary of the board of directors on the disclosure of corporate internalcontrol information. How big is the impact? Therefore, our study involves two key principlesof corporate governance: the positioning of board members and the transparency principle of information disclosure (OECD (2004)).Since the company law was revised in 2005, several domestic scholars have explored the influenceof different secretaries’ backgrounds on the process of transmitting corporate information. Becauseinvestors tend to focus most on the company’s financial accounting information (Mao, Wang, Lin,and Wang (2013)), secretary to the President with financial background may be better able toperform their duties (Jiang et al. (2016)); Pu and Sun (2017) found in their study that comparedwith the secretary of the board with only one identity, the secretary of the board with multipleidentities can significantly improve the company’s credibility Quality of interest disclosure.However, as for gender, educational background and tenure, there are few relevant studies inChina. Internal control, as an internal mechanism of self-regulation and self-restriction of enterpriseproduction and management activities, plays an important role in the central nervous system of enterprises. Chinese scholars have made great achievements in the field of internal control informa-tion disclosure: Liao (2007) referred to the internal control information disclosure system of listedcompanies in the UK and the us, and proposed to establish a set of interconnected internal controlinformation disclosure system to impose mandatory requirements on the information disclosure of ”narrow internal control”. In addition, Qiu, Chen, and Meng (2010) and Ye, Cao, and Wang (2015)respectively studied the impact of information disclosure of internal control on stock price and IPO.However, domestic researches on information disclosure motivation tend to focus on accounting in-formation and society responsibility two aspects, as for the internal control information disclosureitself causes, the logic of which few people pay attention to.With this study, we hope to have a chance to apply a few strokes to these tiny gaps. B. Women’s power: vital and not ignorant  Terjesen and Singh (2008) pointed out that the existence of women in corporate boards maybe influenced by the social factor of gender equality. Greenhaus and Beutell (1985) showed thatthe existence of female executives was largely determined by the social environment of a country.Traditionally, boards of directors are often called ”Old Boy’s Clubs”. Terjesen and Singh (2008)pointed out that this is because women are often considered as inexperienced and difficult to getopportunities to become senior executives. In addition, according to the traditional viewpoint of the difference theory of human capital, compared with men, they have less reserves in terms of education and work experience, which makes them not suitable for leadership positions. Therefore,female executives are often in an auxiliary, decorative and symbolic position, and still face great4  obstacles to participate in management and decision-making (Zhou et al. (2011)).However, from the perspective of psychology, female secretaries can better communicate withinvestors and more effectively convey information, so as to improve the quality of informationdisclosure. Female intuition is a trait recognized by superiors or subordinates. Especially whenenterprises are faced with time-pressed and infrequent decision-making, female intuition tends toreduce the complexity of rational thinking and seize the initiative. Meanwhile, some scholars havefound that communication ability has a positive impact on work performance (Boorom, Goolsby,and Ramsey (1998)). In addition, women’s unique sense of responsibility, sensitivity, carefulness,competence and conservatism are conducive to improving the quality of information disclosure.We hope that when studying the influence of the personal characteristics of the secretary of theboard of directors on the disclosure of internal control information, we can further test the role of women through the study of gender characteristics. III. Hypotheses HYPOTHESIS 1:  Ceteris paribus, female secretary to the president has a significant positive impact on the company’s internal control information disclosure factors. According to the research of Lin et al. (2016), female secretaries have a significant positiveimpact on corporate information disclosure. Based on this, our research continues to study theimpact of female secretaries on corporate internal control information.HYPOTHESIS 2:  Ceteris paribus, the long tenure of the president secretary has a significant neg-ative impact on the company’s internal control information disclosure factors. The secretary of the President who has been in office for a long time is more likely to participatein various affairs of the company. According to the research of Zhou et al. (2011), board membersmay lose some independence due to this, resulting in ”insider problem”.HYPOTHESIS 3:  Ceteris paribus, the chairman secretary with company shares has a significant positive impact on the disclosure factor of company’s internal control information. According to the research of Bennouri et al. (2018), the secretary for the board of directors whoholds shares has a significant positive impact on the performance of the company, and it is inferredthat the improvement may come from the equity incentive that makes the secretary of the boardof directors devoted to solving the agency problem. We assume that the secretary for the boardof directors who holds shares will help the company to implement internal control informationdisclosure to improve the company’s performance.HYPOTHESIS 4:  Ceteris paribus, the multiple positions of secretary to the President have a sig-nificant negative impact on the company’s internal control information disclosure factors. Similar to hypothesis 2, multiple positions are not conducive to the independence of the secretaryfor the President, resulting in ”insider control”.5
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