Outside Director Institution Of China: A Theoretic Analysis And Empirical Test

Base on the research of the outside director in and abroad and the practice of China, I conduct some discuss on the outside director institute in China, theoretic analysis and empirical test, in this dissertation. In the theory part, I first analyze the possibility of invalidation of outside director system from the aspects of law and economics; then, I bring forward a game model and made an advanced analysis of the inner factors that may have an impact on director independence, and then educe the corresponded boundary qualification. In the empirical test part, I study from the following two aspects: 1) the relationship among outside directors, board composition and the shareholding structure; 2) the relationship between the outside directors and the investor protection; the relationship between the investor protection and the factor that including institution of fulfilling, capacity and incentive of outside directors.The analysis shows the outside director institution that works in unitary corporate governance system may not well operate in two-tier system, and the reason may have something to do with the shareholding structure, politics, culture and law etc which are difficult to be changed in a short time. From the deficiency of Corporate Act of China, I analyze the cause of the invalidation of outside directors from the aspects of law and economics. I do not think that promoting outside directors institution in China is a Pareto improvement because the process will do decrease to the vested interest of managers and principal shareholders, thus they will counteract the institution change process and retard it soon coming to institution equilibrium.The analysis shows that CEO (the insider) can sway the independence of outside director to betray the shareholders' rights, especially small shareholder' s right, in many ways, one of which is bribe. The stern punishment to the moral hazard behavior of outside directors from the law system and reputation market is an important way to provent bribe. However, if the law system and reputation market is incomplete and not well operated, stern punishment may cause an adverse effect. It suggests that to enhance the cost of bribe and to establish the appeal and exemption institution for outside directors is a way to decrease the adverse effect of punishment.The analysis shows that if CEO is really able to threaten the outside director with dismissal, the outside director will compromise to the inside out based on own interest, and thus made it possible to expropriate the shareholders' interest, especially small shareholder' s right. An important way to provent it from happening is an appropriate punishment from the law system and the reputation market. To restrict the power of the inside on outside directors is as important as to restrict the shareholding proportion of a controlling shareholder or to introduce more block-holders. The empirical test shows that the CEO has an intention to entrenchment in the listed companies. The proportion of outsider directors is decreasing as CEO holding the board chairman, the increase of executive director proportion and the shareholding proportion. The test shows that CEO has more motivation to advantage management knowledge and social capital of outside directors if he holds more shares. The empirical test also shows that outsider directors can restrain the insiders controlling and protect investors against expropriation by insiders, especially by managers, and help to improve corporate governance, but they almost do nothingfacing the controlling shareholder who can thwarts the working of outsider directors. So reconstructing shareholding structure is absolutely necessary in order to enhance the effect by outside directors in the listed companies.The empirical test shows that the institution of fulfilling duty, capacity of outside directors and incentive to outsider directors are important. However it is greatly decrease the effect of investor protection by outsider directors that the related institution of outsider directors...