An Empirical Study On Board Structure And Its Determinants In China's Listed Companies

Almost all of the corporate governance literatures indicate that board of directors plays a pivotal role in reducing conflicts between management and stockholders due to the separation of ownership and control, especially for the public firms. For the listed firms in China, there is not an effective merger & acquisition market due to the illiquid government shares and legal shares, the law and regulations are not enough and clear to protect the interest of the minority investors and there is short of incentive schemes for the managers, so when there is short of external controlling and incentive mechanism, board of directors that is the internal controlling mechanism plays vital role in corporate governance. Therefore a very important problem arises: how the board structure is composed can be effective. It is the question about the effectiveness of the board structure. This article primarily studies three characteristics of the board structure—board size, board composition and leadership structure. Based on the institutional environment, this article gives the research framework "ownership structure—board structure—corporate performance". This study aims to answer three research questions: the first is the station of the board structure in China's listed firms; the second is the associations between the board structure and corporate performance and the third is the determinants of the board structure.The empirical study on the 622 listed firms at the end of 2001 indicates the proportion of the outside directors is significantly positively related to corporate performance, the proportion of the executive directors and the unitary leadership structure are significantly negatively related to the corporate performance and there is marginally significant positive relationship between the independent directors variable and corporate performance. The findings explain that outside directors, independent directors and the separation of the chairman and CEO positions are the governance mechanisms to solve the agency problems between the managers and the stakeholders in China. Under the second sort method to classify the board composition, this article studies the 538 firms and the findings indicate that the proportion of the directors working also in the stakeholder companies is significantly positively related to the corporate performance, and the proportion of the full-time directors not working in the stakeholder companies. This indicates the second sort method is reasonable.The study also finds the ownership structure and board structure are related, and that there are significant interrelationships among the three board structure characteristics. The findings indicate that during the setting of board, there are two bargaining relationships, one is the bargaining between management and stakeholders and the other is the bargaining between the top 1 stakeholders and other blockholders. Everyone tries their best to control the board. In the end there will be a balance among everyone's rights. The balance will be embodied on the real settings of the board structure. The study also explains the lower effectiveness of the government shares. The government-indirectly-controlled firms and the non-government-controlled firms have more effective boards structure than the government-directly-controlled firms. The government-directly-controlled firms have higher proportion of executive directors and lower proportion of outside directors.The findings of this article can give experience support for the theoretical innovation of corporate governance in China, and can give empirical evidence for the further perfecting the corporate micro-governance structures of China's firms.