A Study On The Protecting Effect On Minor Shareholders By Independent Director System In China

The core of modern corporate governance has gradually shifted from the agency problem between shareholders and manager to the interest conflicts between large shareholders and minor shareholders. In China, the excessively centralized shareholding structure makes the interest conflict between the controlling shareholders and the minor shareholders even more serious, and the related-party transactions play important role in large shareholders' invasion behavior.Regarding this, the Chinese Securities Supervisory Association introduced the independent director system in 2001, as a mean to strengthen the independence of the board of listed company and limit the related-party transactions and restraint on the large stockholders' behavior, thus to protect the minor shareholders' benefit.This article works on the effect of independent director system on the protection of minor shareholders' benefit by inspecting the related-party transactions. It analyzes the mechanism of independent director system protecting the interest of minor shareholders theoretically at first, and then summarizes present situations of the independent director system and related-party transactions in China. Based on this, it examines the effect of restraint on related-party transactions empirically, which can reflect the protection potency of independent director on minor shareholders' benefit.The empirical results show that the effect of restraint on related-party transactions by independent director system is not significant. It means the independent director system's effect on supervising and restricting the large shareholders' behavior is much less than the expected effects. But concretely, we can find a weakly negative relationship between independent director system and related-party sell and purchase. It's also shown that the restraint on related-party guarantee and fund occupancy is noticeable in certain years. Thus, it is implied that the independent director system should be improved, so as to protect minor shareholders more powerfully and efficiently.