Board Independence、 Board Election Efectiveness And Captial Market Reaction

As the core of modern enterprise system, board of directors plays acentral role in corporate governance and the key to its successfulfunctioning lies in the independence of the board. Effective corporategovernance structure and established independent director system areinterdependent and promote mutually. Market participants are veryconcerned about how to change the internal structure of the board toenhance its role in corporate governance and improving companyperformance. To verify the capital market reaction to the level of boardindependence, capability characteristics and individual characteristics ofthe independent directors and verify the effectiveness of the boardelection, based on empirical data of A-share listed companies, this studysystematically tested the relationship between stock return rate and boardindependence level, the capability characteristics and individualcharacteristics of independent directors respectively, and tested theinterrelationship between corporate performance after board election and board independence, the capability characteristics and individualcharacteristics of the independent director.The key findings of this study are summarized as follow:1. One-day stock return rates before and after the re-election ofboard is positively related to the proportion of independent directors, themost important indicator of the board independence. Capital marketresponds more positively to the board independence when theindependence level is high, suggesting that high board independencemakes more credible board elections.2. There is a weak negative correlation between one-day stock returnrates and the average age of independent directors.3. The association between the place of residence of independentdirectors and the registration place of listed companies has a weaknegative impact on stock return rates, but this may be due to defects ofthe source data.4. Consistent with what the literature has documented, One-yearcorporate performance after board re-election is negatively correlatedwith the proportion of independent directors, the most important indicatorof the board independence. However, One-year corporate performanceafter board re-election is significantly and positively correlated with theproportions change of independent directors. Corporate performance isgetting better with the increase of board independence, suggesting the effectiveness of the increased board independence. This change analysesalso better addresses endogeneity issue than the level analyses.5. One-year corporate performance after board re-election isnegatively correlated with the numbers of sub-board.6. There is a weak negative correlation between One-year corporateperformance and the average age of independent directors.