1. 1 Does the Reputation of Independent Non-executive Directors Matter: Evidence from Hong Kong King & Peng Discussed by Joseph P.H. Fan Chinese University of Hong Kong

2. 2 What the paper does  Constructing reputation scores for almost 4000 INEDs in Hong Kong as of 2005  Linking IPO pricing with the average reputation score of INEDs for 162 firms gone public between 1999-2005 in Hong Kong  Event study on the stock price effects of 976 announcement of INED appointments between 2003-2005

3. 3 Main findings  More prestigious individuals are attracted to become INEDs of less risky and better performing firms  Appointments of prestigious INEDs are associated with smaller IPO first day stock return (underpricing)  The market reacts positively to the new non- replacement appointments of less-busy prestigious INEDs

4. 4 General Comments  Contributions  Reputation as a potentially important governance mechanism  Systematic measuring director reputation  Considerations  How does reputation work?  Measurement  Endogeneity

5. 5 How does reputation work?  Not clear in the paper  Bonding?  Monitoring?  Networking?  Political, business, and social connections  Can increase firm profit, but not necessarily the quality of corporate governance  Consulting?  Need more refined data to differentiate

6. 6 Reputation score – What is in a job title?  Weights arbitrarily assigned  I trust that you have done serious robustness checks  Relying on job titles and firm size  What is in a job title?  Ability, experience  Network  Might work for consulting or relationship based dealings, but not clear about bonding or monitoring  Specific evidence is needed to establish bonding or monitoring  Is CEO turnover more related to firm performance in firms with INEDs with more titles?  Do INEDs loss their other jobs after poor performance or scandals?  Do firms with reputable INEDs more likely to raise equity capital after IPOs?

7. 7 Endogeneity issues  If “reputable” INEDs are good, why not all firms hire them?  Do firms with high information asymmetry and/or agency problems tend to hire these directors?  They are expensive to some firms  Risky firms (the paper has considered it)  Some firms already have enough reputation  There exist numerous other reputation mechanisms  Controlling owner’s reputation, institutional investment, cross-border alliance (foreign investment), etc.  Some INEDs are attracted to the firms to borrow these firms’ reputation - reverse causality

8. 8 Mitigating the endogeneity concern  Given the endogeneity, it is not clear why there should be any relationship between director “reputation” and firm value  At the least,  including additional control variables in regression, such as ownership concentration, ownership type (state, family, etc.), more importantly the controlling owner’s reputation, etc.  Better still,  a simultaneous regression  Best choice:  a natural experiment

9. 9 Others  Not clear what Table 2 does  More basic statistics about the INEDs  Age, track record, social network, political connectedness, etc.  Not clear whether the INED data is aligned with the IPO data  In IPO pricing regressions, ex post stock volatility is a bad proxy for uncertainty. You need an ex ante measure of information asymmetry  Are the announcement dates of INED appointments the first information release dates? How are the financial data line up with the stock price data?  Are event study results sensitive to the choice of event window?  Accounting for effects from firms belong to the same business group  Long-term performance?

10. 10 Overall  Good attempt for understanding the roles of INEDs in Hong Kong  Need better understanding of how reputation works  Rampant endogeneity issues to be dealt with  How well can the results be generalized?  Do we expect the same on U.S. firms?