An Empirical Study On Independent Directors And Corporate Performance Of Listed Companies

Independent director theory stems from American investment company act in1940which aims at preventing internal control and protecting interest of minority shareholders. China introduced this policy in2003and required public companies to hire at least1/3independent directors. Independent directors are obliged to use their professional knowledge and experience to raise proper suggestion and help improve company’s performance. Independent director theory relies on three theoretical foundations:first is agency cost theory and second is boards functional differentiate theory and third is resources to support theory.However, no matter in theory or in reality, there are objections of independent directors’effectiveness. Therefore, this essay intends to research on the factors which are related to public companies’performance and offer some proper advices to improve policy building.In this essay, the author first gives background and theoretical foundation and then summarizes both foreign and domestic research results. Furthermore, the author collects69public companies in China stock market from2005to2011and picks several indicators to build a liner model. Robust detection is also used to test the model.The author finds four results:first the ratio of independent director number has negative relationship with public company performance, it’s enough to reach1/3and it will cost much more for each extra one. Second, gender or age has no impact on the company performance while working for more than more company shows positive impact on company performance, the reason may be that this is a good signal for other company to choose a right candidate. Third, the research shows that the relationship between salary and company performance is not clear. In china, some state-owed companies rarely pay for independent director while some companies offer them high payment. Forth, attendance has great effect on company performance.Based on the research results, the author gives four advices. First, company should hire proper number of independent director according to their situation. Second, company should improve the salary system, reduce short term pay and add more long term benefit, like stock options. Third, they should strengthen supervising on independent directors, to public their work performance on time and punish their absence from duty. Fourth, it’s necessary for them to work in the company for several days in a year which offers them good chance to know company’s operating conditions.