Study On Function Of Independent Director Based On Performance Variability_

In view of the present inconsistent empirical research findings on independent director and the enterprise performance, this paper studied the functions of the independent directors from the perspective of enterprise performance fluctuation. About the functions of the independent directors, previous research has mainly focused on its supervision function on the behaviors of management or big shareholders. The paper holds that independent directors shall have both supervision function and resources providing function by combining principal-agent theory with resources dependence theory. Accordingly, I have designed the research assumptions and research model to conduct the empirical test.Many scholars found that independent directors did not play a role in enhancing the performance of the company by studying the impact of independent directors on corporate performance, resulting in the paradox of "independent director system". However, in addition to the absolute value of the company’s performance, the performance volatility is also an important index to judge corporate development, which represents the stability level of the development of the company. Therefore, it is of great significance to study the functions of the independent directors from the perspective of performance variability.According to the research on the relationship between independent directors and performance fluctuation of the small and medium-sized board-listed enterprise from2005to2010, we can conclude that the functions of independent director exert certain influence. Among them, the independent director’s supervisory function gets a good play, constraining management’s extreme behaviors of and stabilizing the company’s performance. The function of independent directors to provide the resources is mainly from the capital they own, that is, their education background, professional background and career background, which has different functions on the stability of the performance of the company stability. The independent director’s government background and financial background are beneficial to the stability of the company performance level. And independent director’s academic institutions background, financial background and legal background will increase the company performance volatility.However, all parties can’t totally understand the independent director’s function, thinking that its role is only to supervise the management’s behavior, which requires the construction of the independent director system in China developed quickly to provide a better institutional environment for the functioning of independent directors. Only by knowing independent director’s function completely can we pay attention to the independent director’s role in the enterprise. While the management class make relevant policies and system, they should not only focus on the number but also the substandard quality of independent directors. And for the management of the company, it should not exclude independent directors, not putting them in the opposite but seeing that they offer a variety of resources and should cooperate with each other. For the shareholders of a company, in the choice of independent directors, they should pay more attention to the independent director’s capital rather than its independence. For the investors, they should deepen the understanding of the function of independent directors to help them make a more correct judgment and decision for the company so as to make more complete assessment of the resources and make more accurate forecasts of the company performance.In general, it’s necessary to understand the function of the independent director from the point of the performance volatility. Then we can more fully understand the role of independent directors. Meanwhile, we should make independent director’s function further clear and pay attention to its influence on corporate performance and performance stability and create more suitable environment for the full play of the function of the independent directors. According to the empirical results, this paper finally put forward some advice for establishing and perfecting the system of independent directors.