Board Authority And Corporate Financial Decision-makin

The internal power is the basis for a company to have cost advantages and development space,and the internal power allocation enables corporate managers to have decision-making power in resource allocation,which is an important part in the process of company value creation.Since the proposition of "separation of ownership and control right" in modern companies,there has been a debate on how to distribute power between the shareholders and the board of directors.Specifically,there has been two concepts of shareholder meeting centralism and board centralism.On this issue,these two concepts are practiced by different countries around the world.Different from western countries that following the centralism of the board of directors,such as the United States,the current legal and economic system in China implements the centralism of the shareholders meeting.However,with the continuous improvement of the legal system and the requirement of high-quality development in recent years,there is a trend to gradually strengthen the power of the board of directors in China.In this context,the internal power allocation of the company and the economic consequences of granting more decision rights to the board of directors become important research issues that need to be focused on.However,due to the limitations of research scenarios and the insufficient disclosure of corporate power structure data,previous studies have not paid enough attention to this issue.Some of the relevant literature focusing on the power of managers just indirectly measured the internal power allocation through the corporate governance structure and the characteristics of managers.In the Chinese context,the relevant research focusing on the power of board or managers is mainly based on the research design of western scholars under the board centralism,which indirectly measures the informal power through the corporate governance structure and the characteristics of managers,rather than formal power of the company’s board of directors.The current Company Act of China stipulates that the general meeting of shareholders is the power organ of the company,while the board of directors is responsible for the general meeting of shareholders,exercising its powers and performing its responsibilities within the scope prescribed by the law and the articles of association.Based on the provisions of the Company Act on the power of the board of directors,this dissertation takes A-share listed companies in Shanghai and Shenzhen Stock Exchanges in China as the research sample,and uses the manual-collected data of investment authority of the board of directors stipulated in the articles of association,to measure the power allocation pattern between the general meeting of shareholders and the board of directors.This dissertation first examines the influencing factors of the decision-making power arrangement between the general meeting of shareholders and the board of directors,so as to deepen the understanding of the power allocation between the general meeting of shareholders and the board of directors of listed companies in China.On this basis,the dissertation further examines the impact of the authority of the board of directors under the arrangement of the company’s internal decision-making power on the company’s investment decisions,including asset investment and innovation investment.Specifically,asset investment and innovation investment reflect two different focuses of capital allocation of the company,namely,the current and the future economic benefits.In terms of influencing factors of corporate decision-making power arrangement,this dissertation firstly finds that the decision-making power arrangement measured by investment authority between the shareholders’ meeting and the board of directors was mainly affected by economic factors including company size,growth,profitability and operational risk.There are significantly positive correlations between company size,growth,operational risk and the authority of the board of directors.And there is a significantly negative correlation between company profitability and the authority of the board of directors.Secondly,the decision-making power of the board of directors of the company is also affected by the shareholding ratio of the controlling shareholders,but will not be affected by other equity structure characteristics such as the separation of two rights and equity balance.Thirdly,the power distribution pattern between the general meeting of shareholders and the board of directors is not affected by the characteristics of the board of directors,such as the size and the proportion of independent directors of the board.Finally,the results of further analysis show that there is no significant relationship between the authority of the company’s board of directors and the agency supervision mechanism represented by independent directors,creditors,auditors and external legal systems.And there is also no significant relationship between the authority of the company’s board of directors and the economic and political factors represented by the maturity of factor markets,government intervention and the tenure of local officials.But there is a positive correlation between the authority of the company’s board of directors and the uncertainty of economic policies.In general,in the context of the economic and legal system in which Chinese companies implement the centralism of shareholders’ meetings,the controlling shareholders of the company have an important influence in the setting of the authority of the board of directors,and will mainly consider the influence of the economic factors of the company and the uncertainty of external economic policies in the decisionmaking power arrangement.In terms of corporate asset investment,this dissertation finds that higher investment decision-making authority in the company’s articles of association,that the shareholders’ meeting of the company granting the board of directors,can significantly improve the sensitivity between corporate future asset investment and current profitability,that is,improve the flexibility of corporate asset investment.The higher the investment authority of the board of directors as the management of the company,the better the friction in the investment decision-making process can be eliminated,which helps the company to seize the investment opportunities in a timely manner by giving full play to the manager’s ability.The cross-sectional difference tests conducted from the corporate agency supervision mechanism and external economic and political factors show that when the company employs local independent directors,the debt ratio is low,and the external legal system is more perfect,the authority of the company’s board of directors has a more significant positive impact on the flexibility of asset investment.When the uncertainty of external economic policy is higher,the maturity of factor market is higher,the government intervention is less and the tenure of local officials is longer,the authority of the board of directors has a more significant positive impact on the flexibility of asset investment.In terms of corporate innovation investment,this dissertation finds that higher investment decision-making authority in the company’s articles of association,that the shareholders’ meeting of the company granting the board of directors,can significantly reduce the level of innovation investment of the company.This result indicates that the higher the investment authority of the board of directors as the company’s manager,the stronger the manager’s motivation to avoid high-risk and uncertain innovation investment.This would reduce the company’s innovation investment and be harm to the company’s future market competitiveness and long-term development.The crosssectional difference tests conducted from the supervision mechanism of corporate agency issues and external economic and political factors show that when the company employs non-local independent directors,the debt ratio is high,and the external legal system is less perfect,the negative impact of the authority of the company’s board of directors on innovation investment is more significant.With lower uncertainty of external economic policies,lower maturity of factor markets,more government intervention and shorter tenure of local officials,the authority of the company’s board of directors has a more significantly negative impact on innovation investment.Finally,from the perspective of operating performance and market value,the test results of the comprehensive economic consequences show that higher investment authority of the company’s board of directors can improve the future operating performance in the short term,but has no significant impact on the long-term performance.The investment authority of the board of directors has no significant impact on the future market value of the company.This dissertation has several theoretical contributions: First,this dissertation uses the authority of the board of directors specified in the articles of association to directly measure the decision-making power arrangement between the general meeting of shareholders and the board of directors,which provides a new perspective and idea for research on corporate governance and decision-making power allocation.Second,this dissertation focuses on the influencing factors of the decision-making power of the company’s board of directors,and tests the influence of the decision-making power arrangement from the perspective of asset investment and innovation investment,which can enrich the existing literature on the allocation of decision-making power between the company’s shareholders’ meeting and the board of directors,and deepen the understanding of the economic consequences of decision-making authorization.Thirdly,based on the differences in the authority of the board of directors under the arrangement of corporate decision-making power,this dissertation conducts the corresponding research from the perspectives of asset investment and innovation investment.This research design not only focuses on the specific impact of decisionmaking power on different types of investment,but also builds a global research perspective on the arrangement of decision-making power and the allocation of capital at different levels of the company,which can enrich and expand the relevant research on corporate investment decision-making.In addition,the research conclusion of this dissertation on the influence of the authority of the board of directors on investment decisions also has some practical significance.Under the downward pressure of the economy,as a value creating entity at the micro level,the company can actively influence its assets and innovation investment decisions through the adjustment of the allocation of decision-making power between the general meeting of shareholders and the board of directors.With cooperation of the corresponding incentive and supervision mechanisms,this adjustment can help to boost the high-quality development of the macro level economy.In addition,in the new round of revision of the Company Act of China,the reconstruction of the power system between the general meeting of shareholders and the board of directors of public companies is one of the important issues that need to be resolved urgently.The conclusions of this dissertation on the authority of the board of directors and investment decisions can provide empirical reference for the revision of relevant laws in the future.