The Effects Of Board Discretion On Operating Performance Of China Listed Companies

The board is the center of corporate governance structure. Thus, improving board governance and standardizing board behavior is the key to the improvement of the listed companies'corporate governance, as well as the standardization of their operation procedures. Board discretion, which is required to be clarified in"The Articles of Association"for China listed companies, works as the legal basis for supervision over managers and the board as well. Board with excessive discretion will work with limited supervision, and very likely, it will ignore the benefit of shareholders which finally leads to the deterioration of shareholders'property. On the other side, board with too limited discretion will lead to an inefficient decision-making process. The company will take more time to respond the environmental changes happened in the market. Ultimately, the adaptability and profitability of the company will be undermined.Existing researches attributed different company performance and values to different characteristics of company boards. Based on the data of China listed companies'board discretion, we found that companies who set board discretions have performed significantly better than those who did not. Further analysis shows that the board discretion of China listed companies was negatively correlated to their profitability but positively correlated to the difference between annual profitability indices. It means, for current China listed companies, an increasing board discretion will only be accompanied by an accelerated decrease in profitability.The innovation of this paper is: The concept of board discretion was concreted for possible quantitative analysis. Current studies of board discretion not only cover business investment, financing, but also cover the appointment and removal of management, the incentive program and profits allocation, etc. The complexity of discretion and the inaccessibility of research data left limited possibility for numerical analysis. Therefore existing studies mainly concerned about the properties of the board. To solve this problem, this article will limit the study of board discretion under the "Articles of Association," where the range of board discretion is required to be clarified. The board discretion was measured through a relatively stable method and classified by different trade targets. Then we studied the effects of board discretion in investment items over company performance.Clarifying the range of board discretion can help reduce agency problems caused by internal friction and reduce the cost of corporate governance. The authorization of discretion itself is an incentive to the board, and improving the efficiency of decision-making as well as accelerating their response speed to changes in outside environments, thus enhancing company value.We suggest that it is necessary for the company to set board discretion, and clarify the range of discretion. The paper also provides basic data for discretion studies, which we hope may be useful to more in-depth studies and thus help the improvement of corporate governance of listed companies.