Research On The Relationship Between Independent Directors And Cost Of Debt

As the main body of China’s capital financing market, the main purpose of listed companies is to reduce the capital financing constraints and the cost of financing. It can significantly increase the value of the market that improving the governance structure, the quality of accounting information and the company’s operating ability level of profitability level. Also, it can give the good news to the capital market, reduce the information asymmetry phenomenon and reduce investment risk of outside investors. Therefore, it is particularly important that improving the corporate governance structure to reduce the financing constraints and the cost of financing.At present, the structure of governance of listed companies is the Shareholders Meeting, the Board of Directors and the Board of Supervisors. The Board of Supervisors in the listed companies is in a weak position and not able to effectively control and supervision of the Board of Directors. Due to the lack of supervision and checks and balances, our listed companies have the unique ownership structure that led to "internal control" that phenomenon is very serious. Controlling shareholders and managers use information advantage manipulating profit, seriously damaging the interests of minority shareholders.In order to improve the disadvantage of the shareholder controlling the board of directors, the United States promulgated the "investment company act" in1940, introducing the independent director system. The system has played a very important role in improving the big shareholders manipulate the unfavorable situation of the board of directors, reduce the agency problem and cost Prevent enterprise by insider control to protect the interests of the creditors’rights and interests of investors.In2001, in order to solve the unique ownership structure and "internal control" problem, The China securities regulatory commission has issued the "About the Listed Company to Establish the Independent Director System Guidance". This is the first normative documents about setting up the independent directors in listed companies. Based on the laws and regulations, independent directors fulfill their supervisory duties; protect the interests of minority shareholders. This marked the independent director system set up and developed step by step in our country.The independent director system innovation and perfect the corporate governance mechanism. Especially in China’s economic transformation period, the independent director use its own external independence, play the role of the supervision, improve the quality of financial information of the company, operation ability and the level of profitability, thus protect the value of the company and the interests of investors.In the governance mechanism, as external supervision and balance of power, the independent directors can effectively supervise the operation behavior of managers and major shareholders, reducing the on-the-job consumption phenomenon. The independent director can effectively identify the earnings management behavior, strengthen the company’s financial information disclosure of normalization process, and reduce the financial information asymmetry between internal managers and outside investors. At the same time, the independent directors can improve the enterprise’s business performance and the market value.It will reduce investors especially creditors request returns, promote debt financing cost down if the investment risk is low.This paper research how the proportion of independent directors of listed companies in China, attendance and professional background impact the company’s cost of debt financing; At the same time the paper analysis the path that independent directors affect the cost of debt.The article is divided into six chapters.The first chapter is introduction. This part begins by describing the research background, method, content and significance of this article.The second chapter is literature review. This part introduces the present research situation and results of the independent director systemThe third chapter is an introduction of the related theory of the independent director.This part analyze relationship between independent director system and corporate debt financing costs, and analyze the path that how independent director impact the debt financing cost. Thus the paper put forward the hypothesis.In this part, the paper introduces the theoretical basis of the independent director system, the inner mechanism of the independent director affect the cost of corporate debt financing, from the principal-agent theory, the crew reputation theory, resource dependence theory and hypothesis analysis of the system in China. And this part analysis the theoretical deduction of the independent director system and the influence of debt financing costs, puts forward the assumption, constructs the model.The fourth chapter is about the selection of model data processing. The chapter mainly introduces the data source, sample selection, variable indexes and model building.Reference to relevant literature, this article selects five years of the listed company as the basis of sample.The fifth chapter is the empirical results of this article.This part examined the independent director system and the cost of debt using data from2008-2012. Empirical analysis shows that the proportion and attendance of independent directors is a non-significant correlation exists; professional background of independent directors is a significant correlation exists.Sixth chapter is summary of this article research conclusion and put forward policy suggestions.According to the theory analysis and empirical analysis, the paper propose policy and suggestions to perfecting our country’s independent director system of listed companies, and sums up the limitations of this study and the insufficiency, proposed the future research direction.In this paper, we study found that:(1) The higher the proportion of independent directors, attendance, the lower debt financing cost of listed companies. But the correlation is not significance.(2) The more the proportion of independent directors with government or bank official background of listed companies, the lower the debt financing cost. And the correlation is significance. (3) The independent director with government or bank official background of listed companies mainly reduce the enterprise financing constraints, to further reduce the cost of financing.The main contribution is as follows.The firstly, this paper directly explore relationship between our country independent director system and corporate debt financing costs from the three dimensions. At present there are few scholars who explore the independent director system impact on the company’s cost of debt. Therefore, this article has enriched the independent director system in the role of capital market and the research system of debt financing costs.The secondly, the paper discuss the relationship from three independent director dimensions which the proportion of independent directors, board of directors meeting attendance and the professional background of independent director. Also, the paper researches how independent directors affect the cost of debt.The thirdly, this paper puts forward the new ideas on the relationship between independent director system and the cost of debt, improves the corporate debt financing research system. At the same time, the paper complete study on perfecting the system of independent director system in China, for the future study of the independent director system the conclusion provides a theoretical foundation and empirical basis. The paper puts forward reasonable suggestions to improve the system of independent directors of listing Corporation in China, the independent director system has more obvious effect on China’s Enterprise Inc management.