Board Independence And Firm Performance, International Comparative Studies

With the economic globalization, in order to attract foreign capital most governments not only enhance the inclination in policy but also encourage the improvement of corporate governance. Enhancing board and the independence of board is a prevail practice. Non-executive director representation, board leadership and board committees were recommended in the best code of practices of Cadbury Report, support for which can be found in the principal-agent literature. This was designed to increase the confidence of shareholders in the governance process. From a strategic contingency perspective it was believed there existed a dynamic interaction mechanism between the composition of the boards of directors, measured by size and outside director representation, and corporate performance. On the one hand, Corporations' environments, strategies and past performance have meaningful effect on the choice of board composition; on the other hand suitable board composition will improve board's flexibility, which lead to better corporate performance. In the third part of this study, in order to offer an institutional framework to China's board governance we have made international comparisons about board governance between two-tier boards and single-tier boards, developed markets and developing and emerging markets. Under the recommendation of China Securities Regulatory Commission, China's independent director system has been building and is becoming a focus of corporate governance. In the fourth part a statistical analysis about board independence is made using quoted company in trade sector since 1999 in Shenzhen and Shanghai Stock Exchange as our sample, then a pertinence analysis about board independence and corporate performance is made based on a non-random subset of extreme performers in the sector studied. Though from our empirical examination we can't draw general conclusions about performance and governance, we do obtain some meaningful information and conclusions under some circumstances, which accords to China's actuality. In the end, we give some suggestions about China's independent director system.