Hierarchical culture and the social status of independent directors: evidence from China

Purpose This study examines how corporate hierarchical culture influences the social status of their independent directors. Design/methodology/approach We construct a firm-level measure of hierarchical culture using annual reports of Chinese listed firms between 2010 and 2023. We examine how hierarchical culture is associated with the social status of independent directors and explore the mechanisms underlying this relationship. To address potential endogeneity concerns, we conduct a series of robustness checks, including difference-in-differences and instrumental-variable approaches. Findings We find that hierarchical culture is associated with lower social status for independent directors. The effect is stronger in state-owned enterprises (SOEs), firms with low R&D intensity, higher relationship spending, and those in the non-growth stage. Mechanism analysis indicates that hierarchical culture undermines independent directors' status by weakening bank-firm relationships and reducing strategic alliance formation. Moreover, a stronger business environment, more diligent board oversight, and greater board diversity mitigate the adverse impact. Further analysis shows that declines in director status reduce firms' cash-flow liquidity and increase agency costs. Originality/value This study highlights corporate culture as an important organisational norm shaping the social status of independent directors in an emerging economy. It provides new insights into how internal cultural norms influence director incentives and governance outcomes.