A Study On The Relation Of Board Capital,Inefficient Of Investment And Financial Risk

Board capital means the board’s contribution of resource to a company. This article is trying to explore the relation between board capital and company’s financial risk under China’s special economic environment. The efficiency of investment is considered as an intermediate variables in this article. This study enriched the domestic researches about the board capital, expand the ways of effective supervision and reducing company’s financial risk. This article will provide new perspective of how to do better business management. We want to exploring whether can we reduce financial risk by building a new board. The practical significance of this paper is to provide a theoretical basis of board building, encourage enterprises improving the" efficiency of the board., wishing the board can be more accurate in decision-making process and reduce the financial risk of their company.This research is based on China’s A-share private companies. First, it sorts out the concept of board capital, identified the classification and measurement method of board capital. Second, based on the principal-agent theory, high-rise ladder theory and the theory of free cash flow, we do the theoretical analysis and derive the relationship between variables. Third, we do correlation analysis, correlation test and regression analysis with empirical and normative methods.The results showed that board’s personal capital and board’s social capital both have directly and indirectly impact to company’s financial risk. They affect the financial risk through two paths. First, the average age of the board, board’s gender structures and political connections will directly affect the level of financial risk. Companies with an older average age and a higher proportion of women will have a lower level of financial risk. Political connection also has an impact on corporate financial risk. Second, the board capital will affect the financial risk through affecting company’s investment efficiency. Board with an older average age will make more efficiency investment decisions. So that the company’s financial risk will be lower. Also, if board members have more outer company connections, the company will have more efficiency investment decisions and lower financial risk.In the traditional study of corporate governance, the focus of research is on company’s cash flow, financing costs and other financial data. Researches based on individual heterogeneity and behavioral finance are not mature and researches about board capital are even just started. Domestic studies are mainly focus on defining the concept of board capital and reviewing foreign literatures. Only a few researches begun to explore the relationship between board capital, enterprise value and companies R&D expenses. Therefore, there are two innovations in this article. First one is innovation of research prospect. From the perspective of board capital, this article explored board capital’s impact on company’s financial risk. Thus providing important theoretical reference for restricting corporate investment behavior and reduce financial risk by construct better boards. The other innovation is on the research subject. This study take Chinas private listed companies as the research subject and analysis board capital’s impact under China’s special economic environment.