Firm Performance And Board Structure

The conflict of interest between majority and minority shareholders became more intensive in 1999 because of the expropriation held by the majority shareholders and inside directors, so the government of China carried out some measures to reduce the agency contradiction This paper tries to investigate the relationship between firm performance and board structure since Principles of Chinese Company Governance has become operative as from 1 January 2002.There are four sections in this paper.Section 1 defines the object of the study. Section 2 analyses the reason and the property of the board structure's institutional change combining the theory of institutional change. Section 3 introduces the methodology of the study. Section 4 makes empirical studies to examine its effect. Two industries have been employed on the study. The fist is food industry, the second is electronic and information industry.According to this paper the following major conclusions can be drawn:(1)There is a positive relationship between the presence of an audit committee and firm performance This conclusion supports the view that firms responded to the Principles of Chinese Company Governance willingly and can get profit. (2) There is no significant evidence to show that the institutional change of independent director is effect. This conclusion supports the view that firms responded to the Principles unwillingly and can't get profit because of the property of the compulsory institutional change.(3) There is a relationship on side between the Percentage of board seats held by majority shareholders and performance. Relationship is negative in food industry on one side and is positive in electronic and information industry on the other side The results suggest that company's market environments and equity ownership concentration are quite different, a particular governance structure may be appropriate for one firm but not for another. Therefore this paper lend weight to the need for greater flexibility according to a firm's specific circumstances.