Research On The Relationship Between The Board’s Characteristics And Corporate Performance Of The Listed Companies Of Manufacturing Industry In China

In an enterprise, the Board is a significant decision-making and supervising agency, which is also central to the internal mechanism of the corporate system. An excellent Board can supervise the management behavior of layers of management effectively, make decisions rapidly, guarantee that strategies of helping the corporation gaining long term interests to be implemented and safeguard the interests of shareholders. Thus, modern corporate governance of the board’s primary task is to improve the characteristics and operation of Board in order to establish a normalized and efficient board.Well, as a hub of corporate governance, characteristics of the Board will have an effect on its governance and the operating performance of public companies or not has become the hottest topic in the theory and practice field. There has been considerable theoretic research results about the relationship between board characteristics and company’s operating performance both at home and abroad, but practical research results about it have significant difference. Most of the domestic scholars use the whole country’s public companies as samples, while few use public companies in a specific industry as samples. In view of differences between industries may affect the result of research, this paper selects public companies of manufacturing as object of study, analyze and explain the reasons of practical results integrated with particular corporate governance environment of Chinese public companies hoping to provide empirical evidences and references.This paper is based on research ideas, such as theory research, empirical testing, and policy recommendation. First, I give a relevant literature review and recommends relevant theories of the board and corporate governance. Second, I propose six research assumptions and establish two models based on theoretical research. Following that, I choose manufacturing public companies in China as my study object. All these data used are from their yearly financial reports from 2007 to 2009.I analyze empirically the relationship between board characteristics and the company’s operating performance. The results show that the board size is significantly positive with firm operating performance, Whether to alter board chairman is significantly negative with firm performance, the proportion of independent directors is significantly negative with firm performance, the board director holding the general manager is significantly positive with firm performance, the proportion of directors shares is significantly positive with firm performance, the frequency of board meetings is uncorrelated with firm performance. These results demonstrate that many Chinese boards have not played an active role in the corporation’s operation and in the promotion of the operating performance. Only when we remedied these defects, can we insure the promotion in firm’s operating performance. The purpose of this study is to find out the drawbacks of characteristics of board, analyze existing problems and shortages of the operating of board, puts forward feasible policy, in order to improve the governance of the board and to promote the company’s operating performance effectively.This paper includes 6 chapters as follows:Chapter 1 is the introduction, which expounds he background, purpose, significance of the study,contents, method, the main contribution, innovation and drawbacks of the paper..Chapter 2 is literature review. I give a relevant literature review about characteristics of board and the company’s operating performance, these four characteristics are stability (the board size, whether to alter board chairman), independence(the proportion of independent directors, whether the board director holds the general manager), motivation(the proportion of directors shares) and behavior (the frequency of board meetings).Chapter 3 analyzes the board’s impact on corporate performance. I expound three typical theories of management of board, which are Principal-Agent Theory, modern housekeeper Theory and Resource dependence Theory.Chapter 4 is research design. I put forward six assumptions about the relationship between characteristics of board and the company’s operating performance based on theoretical basis of the above. These six assumptions are as follows:First, the board size is positive with firm operating performance, whether to alter the board chairman is negative with firm performance, the proportion of independent directors is positive with firm performance, the board director holding the general manager is positive with firm performance, the proportion of directors shares is positive with firm performance, the frequency of board meetings is positive with firm performance. Then I illustrate selection of samples, source of data and selection of variables. I choose the board size, whether to alter board chairman, the proportion of independent directors, the board director holding the general manager, the proportion of directors shares and the frequency of board meetings as explaining variables, select ROE and EPS as dependent variables, in addition, I adopt the size of the corporation, the asset-liability ratio and the growth rate of profit as the controlling variables. Then I set up two models.Chapter 5 is empirical research, which is the core of the paper. First, I make descriptive analysis on data of variables from 2007 to 2009 in manufacturing industry, and then I adopt the backward method of the stepwise regression to test the correlation of six characteristics of board and the firm performance and then give results.Chapter 6 is conclusions and recommendations. I deduce conclusions based on the above results and analyze the conclusions. I also point out the problems about board in manufacturing industry and give corresponding suggestions. This part proposes some advices to strengthen the capacity of governance of the board, and to improve the efficiency of the board from the standpoints of the board size, the independent director system, the structure of leadership and quality of the board meeting.The research results on the relationship of the characteristics of the board and the company’s performance are quite abundance, however, all the research have not come to an agreement yet. Many scholars only selected one or a few characteristics of the board to make research. What’s more, many scholars at home in early days often select data of a cross-section of the year, or a cross-section area to study, which probably have an effect on the result. Therefore, this paper’s main contributions are as follows:First, Most scholars use the whole public company as research object, while few choose companies in a specific industry as object, owing to the differences between the industries, the comparability and accuracy of the results are low. Owing to the manufacturing industry is our country’s focus industry and a fast growing industry, this paper choose companies in manufacturing industry as object, study the relationship of the features of the board and the company’s performance. So it can offer suggestions to perfect the governing of the board and to improve the company’s performance under the background of rapid growth of the manufacturing industry at home and aboard.Second, in the modern study of economics, empirical research has become the mainstream. So we adopt theoretical and empirical research comprehensively, not only analyze theoretically about the correlation of the features of the board and the firm’s performance, but also make the empirical analysis by using exhaustive data. Thus, the conclusions this paper reached are far more convincing.Third, traditional scholars only selected one or a few characteristics of the board to make research. This paper select six variables of the features of the board, study the correlation of the features of the board and the firm’s performance systematically. I analyze and test two models in order to insure the authentic of the result.Lastly, this paper analyzes and explains the empirical results, then deduces conclusions and at last puts forward pertinent suggestions.Owing to the limited time, materials and my ability to write this paper, it still exist shortcomings, which is also the right direction for further research. In this paper, the deficiencies are as follows:First, the variables of the features of the board I choose are not complete, though they have already embraced the variables which scholars at home and aboard have studied or have gained force. In the future study, we can select the variables of the features of the board completely, such as age, sex, education, profession, title, political relation, whether directors server in associated company and so on.Second, I only select 2007-2009 listed manufacturing companies. If we choose longer periods of time and make a comparison between different industries, we may make more constructive accomplishments.Third, some scholars arrive at the relationship between the scale of the board and firm’s performance appears as U-shaped style, I don’t probe into it deeply, just use linear regression. Forth, some literatures point out that there exists a time lag between the features of the board and the firm’s performance. But no one has reached experiment data about how long the time lag is. So I don’t consider the time lag effect, which should be considered in the future study.Last, the paper tests the correlation of the features of the board and the firm’s performance by using manufacturing company’s data after the share reform. However, whether and how the share reform affect the features of the board and thus affect the firm’s performance are not discussed in detail, which requires further research.