The Ratio、Background Of Independent Directors And Company Performance

In the 1980s, a tide of reformation and hostile takeover appeared in Western countries, numerous companies faced the insiders control problem, In the east, economic bubble turned up in Asian countries. This situation prompted the scholars to make theoretical research and practical discussion about corporate governance. Since the 1990s, the world economy is developing rapidly, commerce present the trend of globalization, the wave of improving the internal management was ignited in the listed company. The practice research focused on the allocation of the company power and effective supervision based on agent problem. Thereinto, the independent director system, which originated from British and American, attracted the most attention. It attracted plenty of countries around the world with different culture and social environment to bring in and implement this system. This phenomenon also hinted that the independent director system, which play an important role of modern corporation management, have the unique value on improving the corporate governance structure. More than a system, the independent director system stands for an idea of corporate governance and brings a new concept of corporate governance.The Chinese listed companies’introduction of independent director system is a step-by-step process, received directly from the initial and line with Chinese national conditions later. Chinese company got a have a much better understanding of this system since more and more companies listed overseas. In 1993, people paid more attention to this system when Tsingtao Beer listed in Hong Kong. In 2001, China securities regulatory commission released "The guiding opinions about establishing the system of independent directors in the listed company", which is a historic step of independent director system’s exploration in our country. "Company Law" published in 2006 made the independent director system into law, and guaranteed the execution according to the law. It has been 10 years since the listed companies carried out the independent director system completely. The quantity and proportion of independent directors have changed gradually. The proportion represents the progressive standardization and emphasis of the listed companies. It also stands for the system’s influence to corporate governance of the listed companies from the angle of academic theory and empirical analysis. After all, the proportion of independent directors represents an important value that Power against between the board of directors in the external and internal.Home and abroad, the research about independent director system has two main points. The first is whether the independent director system is effective; the second is the factors that affect the effectiveness of independent director system. These two problems are the two sides of independent director system:Quantity and Quality. The quantity of independent directors which decides the proportion in the board of directors, affects the effectiveness of independent director system undoubtedly. In the condition that the quantity is fixed, the quality of independent directors, which can be measured by its background, will become an important of factor which influences the result of the system. The past 10 years gives us a good opportunity to study that whether the independence of board of directors will influence corporate performance. The previous research about the relation between independent director system and corporate performance, the effect of the system and the factors about independent director system is insufficient. Judging from the independent directors itself, the proportion of independent directors is an important measure of its independence undoubtedly. It’s also an important aspect of studying the structure of board of directors. Therefore, a comprehensive study is necessary. Judging from the background of independent directors, different backgrounds which may bring information, resource, and preferential policy and so on, make different contribution to this company.This paper combines our country’s political system to make theoretical analysis of the relation between independent director and Company Performance. Based on agent theory, contract theory, steward theory, this paper makes empirical study with the samples of listed company in our country and different assumes of independent directors’proportion and company performance. This paper also verifies the influence of independent directors’proportion and background to company performance. We aim to make some further research on the backgrounds of former studies and provide some improved proposals and countermeasures about improving the independent director system. This paper focuses on the three questions:1.the influence of independent directors’proportion to company performance 2.the influence of independent directors’education background to company performance 3.the influence of independent directors’working background to company performance.This article mainly adopts empirical method, assisted by normative analysis, to investigate the influence of independent directors’proportion and background to company performance. The six parts are listed as follows:Part one is introduction. As the starting point of the research in this paper, it introduces the backgrounds, purposes, significances,methods, innovations.Part two reviews and analyses the relevant domestic and foreign literatures. It introduces the domestic and foreign research status and achievements about independent director system, hot topics and trend. At last, a summary is made.Part three introduces related theory of independent director system. The reason why introduced the Independent director system, the role that independent director system plays in corporate governance in China, the function of independent director system in corporate governance are the main body of this part.Part four is theoretical analysis and study design about the relation between independent director system and company performance. It introduces the theoretical basis of independent director system, intrinsic mechanism that independent directors influence company performance, and analyses the independent director system under the background of Chinese system by agency theory, contract theory and steward theory. This part paves the way for empirical study. Besides, on that base, we put forward the assumptions and describe data sources, sample selection, the variable index and model construction.Part five states empirical research about the relation between independent director system’s proportion, background and corporate performance. This article selects listed companies in Shenzhen and shanghai from 2007 to 2009 as a basis sample, choosing suitable control variable, to construct theory model and inspect. The Specific empirical methods include descriptive statistical analysis, correlation analysis and multiple regression analysis. In the end, we conclude the relation between independent director system’s proportion, background and corporate performancePart six is conclusion. According to theoretical analysis realistic analysis and empirical analysis, we make conclusions and give some policy proposal about improving the independent director system of the listed company in China. Finally, the limitations and insufficient are summarized, the direction of further research is suggested.The innovation of this paper place has the following three points:(1)Most of the previous research published from 2002 to 2004, when the data information was not perfect and stable. Our research is made when the function of independent director system is fully revealed, after the system has been introduced into china for 10 years. It is meaningful for improving the Board governance efficiency.(2)Rather than a single angle, we attempt to combine the proportion and background to verify and discuss the educational background and working background.(3)This paper takes MBV, CFO and EBIT as indicator to measure company performance. In our research interval, sample companies still hold plenty of non-tradable shares. If we take Tobin Q as indicator, sample companies may be overvalued. Net assets yield and earnings per share is closely related with the company’s net profit, where exist a manipulated possible.By contrast, the indicator taken by this article not only can solve non-tradable share problem, but also can avoid the current-account interferencethe main research results and conclusions are as follows:(1)The proportion of independent directors in the board of directors has a positive effect upon company performance. We make hypothesis for agency theory, contract theory and steward theory respectively. The conclusion shows that under the circumstance of Chinese corporate governance, agency theory and contract theory are more realistic, therefore, they can provides the policy basis for improving independent director’s supervisory functions. However, the conclusion is not obvious, because the sample companies have already set up independent directors according to the "guidelines", and properly arrange the structure of the board of directors. If each sample companies have reached this condition, the quantity of independent directors is no longer a privilege. So, the conclusion can only show the trend.(2)The government background of independent directors has a significant effect upon company performance. Although our country’s economic marketization process gradually deepened, the government also participates in the market activities sometimes, which have some impact on resource allocation, etc. Independent directors with government background have information superiority about policy, which build a bridge between enterprise and government, helping the enterprise earn more convenient. Besides particular social status and identity, they also have good social resources which can bring numerous business opportunities especially in this affectionate society and improve company performance.(3)The bank background of independent directors has no significant effect upon company performance. Normal business process can’t avoid financing, however, besides credit finance from the commercial bank, equity financing and bond financing from primary market are optional methods. In the meantime, as Chinese commercial banking system is improving, credit approval process becomes more and more normative, credit conditions become more and more strict, manipulate space of bank is smaller and smaller. For this reason, the advantage of independent directors with bank background is reduced.(4)The working background of independent directors has a significant positive effect upon company performance. The major distinction between independent directors with working background and independent directors from colleges is commercial experience. Independent directors with working background have better understanding of corporate governance problem, more sensitive to the market changes and more accurate information interpretation. Thus, they can play the supervisor and management consultant role better. In addition, independent directors with working background are conducive to get strategic partners.(5)The education or academic background of independent directors has no significant effect upon company performance. Education background has some influences on the independent directors’knowledge reserves. Independent directors with good education and professional knowledge, especially with professional knowledge, can bring in frontier technology domestic and overseas to the company and provide certain guidance when companies solve practical problems. In China,48 percent of the independent directors come from colleges and research institute. The data shows that the proportion is excessive. Although independent directors come from academic institution has its own advantages, their company management experience are inferior to the entrepreneur. In addition to supervising, providing strategic services is the duty of independent directors.