Research On The Impact Of Independent Director's Idiosyncracy On Company Performance

The independent director institution is from America and England.The structure of their board of directors is so-called "monolayer" system,which means shareholders meeting select the board,and the board appoints the management team.One shortcoming of this structure is that the board is a decision-making organization in fact,but it has to take on the responsibility of supervising management team.Thus, the function of the board in America and England is mixed up,which leads misfucntion of board to some extenth.Then establishing the independent director institution to strengthen the independence of board and to supervise the management team is a necessary selection.But the structure of board in China is far different from the one in America and England.The board in China is so-called "double-layer" system,which means that there are board of directors and board of supervisors affiliated to the shareholders meeting.The board of directors takes the responsibility of decision-making and the board of supervisors focuses on supervising the activities of board of directors and management team.It seems that there is no need for China to introduce the independent director institution.However,because of the problem of the board of supervisors,it is out of function actually.Because of the great difference in corporate governance between China and USA, some scholars doubt the introduction of independent director institution.They think there are many problems in Chinese independent director institution including independent director's function,independence,selection mechanism,time and energy, harmony with board of supervisors and social environment,law guarantee,etc.In their opinion,when introducing the foregin institution,we should take the actual situation into account.For the huge difference in corporate governance between China and America and England,some scholars are against the practice of the independent director in China. They think there are many problems in Chinese independent director institution including independent director's function,independence,selection mechanism,time and energy,harmony with board of supervisors and social environment,law guarantee, etc.they argue that the introduction of foreign institution should consider the concrete situation of China,otherwise the introduced institution will disfucntion for lack of approcaite environment.But there are also scholars supporting the establishment of the independent director in China because of the disfunction of board of supervisors.The independent director will help strengthen the independence of board of directors to protect shareholders.What's more,the independent director institution has been the common practice of different corporate governance styles.This fact indicates the independent director institution is reasonable.For example,the Japanese board institution was similar to China's.But Japan revised its related law to establish institution of outside supervisors which equals the independent director in America and England.So we should not discuss whether we should introduce the independent director institution, but discuss how to utilize it to improve Chinese corporate governance.But there are also scholars supporting the establishment of the independent director in China because of the disfunction of board of supervisors.The independent director will help strengthen the independence of board of directors to protect shareholders.What's more,the independent director institution has been the common practice of different corporate governance styles.This fact indicates the independent director institution is reasonable.For example,the Japanese board institution was similar to China's.But Japan revised its related law to establish institution of outside supervisors which equals the independent director in America and England.So we should not discuss whether we should introduce the independent director institution, but discuss how to utilize it to improve Chinese corporate governance.We notice both opponents and supporters of the independent director institution refer to the difficculty in applying it in China and put forward suggestions how to establish it.However,what are the effects of the suggestions? Is reasonable the current independnent director institution in China? How doet it affect the corporate governance or corporate performance? These scholars' answers to the above questions are not enough both in theory and empirical analysis.Besides,there are two phenomena worthy of notice:the first one is that many literatures are researches of the impact of independent director ratio in board on the company performance;the second one is that even those literatures from different perspectVes also focus on the director ratio of board,whether they focus on the relation between independent director and CEO's replace or the relation between independent director and information disclosure.In some sense,most researches of independent director are about "quantity" and are tack of "quality".So this paper establishes the independent director idiosyncracy model after summarizing the literatures on independent directors.The model is composed of indVidual idiosyncracy,position idiosyncracy,independence idiosyncracy,behaviour idiosyncracy and heterogeneity idiosyncracy.The paper analyzes the impact of independent director on the company performance and acquires some meaningful conclusions.The main research conclusions are as follows:(1) The impact of indVidual idiosyncracy of independent director on company performance.The education level of independent director has no obvious positVe impact on the company performance,which is consistent with the former research. The result does not indicate that he higher education level,the better company performance,it also shows the irrationality of blindfold pursue for high education level of some industries and departments.The average age of independent director has an obvious impact on company performance;the ratio of above 50 years old of independent director also influences company performance positVely.The result may suggest that the older independent director is more knowledgeable and experienced.The paper examines the relation between the ratio of independent director who has experience of industry field and academic field and the result shows that the relation is positVe correlated.(2) The impact of position idiosyncracy of independent director on company performance.The average tenure of independent director has positVe relation with company performance.The research result shows that the independent director plurality has negatVe impact on company performance.It indicates that although the plurality can make independent director more experienced and more knowledgable,and independent director can bring more resource.But their time and energy is limited,so they can not fulfil their responsibility.Thus limiting the number of independent director in companies is necessary.The establishment of committee in board is in favor of company performance, and the committee of number has positVe relation with company performance.The results indicate that establishment of committee is important for independent director to carry out their responsibility.(3)The impact of independence idiosyncracy of independent director on company performance.Independnet's allownce does not have obvious positVe impact on company performance,but the region consistency has positVe impact on company performance.(4) The impact of behaviour idiosyncracy of independent director on company performance.The meeting time has positVe impact on company performance.The supervisory proposal is useful to company performance and strategic proposal has negatVe impact on company performance.The number of proposal has positVe impact on company performance.(5) The impact of heterogeneity idiosyncracy of independent director on company performance.The heterogeneity idiosyncracy of education level has inapparently passVe influence,and the heterogeneity idiosyncracy of age has same result.But we find that the heterogeneity idiosyncracy of occupational background is positVe related with company performance,the heterogeneity idiosyncracy of tenure is as the same.The innovation points in the dissertation are following as:(1) The paper establishes the independent director idiosyncracy model and analyzes the impact on company performance.(2)The paper establishes the independent director behavior idiosyncracy model and analyzes the impact on company performance.(3) The paper classify the vocation background of independent director into three kinds:who are from academic field,industrial field and from both fields.(4) The paper establishes the heterogeneity idiosyncracy of independnt director, including heterogeneity idiosyncracy of education level,heterogeneity idiosyncracy of vocation background,heterogeneity idiosyncraey of age and heterogeneity idiosyncracy of tenure.