Research On The Effectiveness Of Independent Directors System In Family-controlled Firms

Since reform and opening up, family business has become an important force inChina’s economic development and social progress, meanwhile the governance infamily business has more and more obvious problems. In this time, independent directorhas been introduced into the regulatory rules system in Chinese listed companies basedon its positive effect in corporate governance. This article aims to examine theeffectiveness of independent directors in family-controlled firms, and tries to helpdeepen our studies on independent director system and the corporate governance infamily business.Firstly, based on the situation of the family-controlled firm, our article analyses itsadvantages and defects on the manage mode.and expains the necessity that why theindependent director system should being introduced into. Secondly,our article haslogically analyses the mechanism of the independent director system in the use of somerelevant theories such as separation of ownership theory, agency theory, asymmetricinformation theory, stakeholder theory and the theory of property rights theory,and thenputs forward hypotheses related to this article.In the empirical part,we use the family oflisted companies in2006-2008as the research sample,from the angle of the earningsquality,exam how the family-controlled variable impacts on the earnings quality and therelations between the characteristics variables of the independent director system in thefamily business and the earnings quality respectively,in order to test the effectiveness ofindependent directors in family-controlled firms. Empirical analysis shows that: it has anegative impact on the earnings quality of the information due to the family-controlledcharacteristic;under the control of family,the proportion of independent directors andearnings quality of the information shows a significant positive correlation,there is norelationship between the independent director’s reputation and earnings quality of theinformation,there is a significant positive correlation between the independent directorsof professional background and earnings quality,the relatives between the number ofparticipants and earnings quality of the information shows a positive correlation, therelatives between the pay levels of the independent directors and earnings quality of theinformation shows no relationship. Finally, we make relevant policy recommendationsfrom independent director system and the family business governance respectively.