Information Risk、Agency Cost And Independent Directors’Monitoring Decisions

In August2001, China Securities Regulatory Commission (CSRC) issued a guidance which requires all the listed companies in China should establish the institution of independent directors under the guidance of it. Since then, China’s listed companies introduced the independent director system formally. The formal introduction of the independent director system opens a new chapter in the reform of China’s corporate governance system. Up to now, the independent director system in China’s formal implementation has been13years. This system has been approved effective in foreign countries, but in China, does it also play its due role? For this question, the theorists and practitioners have carried out extensive research, the results are controversial, even some of the results are opposite. The result shows that the independent director system which prevailing in our country cannot able to play its due effect. In the special institutional background of China, the supervisory role of the independent director system for enterprise is small. Therefore, since the implementation of the independent director system, the criticism from theorists and practitioners can be heard without end,"Vase director"、"human director"" dependent directors", those vocabulary designed for independent directors vividly demonstrated the embarrassment of the system. The main reason for this phenomenon is still independent directors have not been able to achieve true independence:Judging from the current employment mechanism of independent directors of China’s listed companies, the majority of China’s independent directors are hired by the largest shareholders of the listed companies. So it is really difficult for them to maintain independence. Usually, the persons who employed as a listed company’s independent directors are the friends of the largest shareholders or have some relationship with largest shareholders of that company, so they follow the lead of largest shareholders. Under this selection mechanism of independent directors in listed companies, it is almost impossible for independent directors to supervise the daily operations of the company. So it still has a long way to make the independent director system play its due role. We need to continue to carry on the reform to the system of independent directors, making it adapt to the China’s special system background and the actual situation of listed company.Therefore, this paper’s object of study is the monitoring selection of the independent directors. We study this subject from two aspects:firm-level and director-level. Although the practice of independent director system attracted a lot of criticism, the theorists and practitioners also doubts whether the independent director can effectively improve corporate governance, but it is undeniable that the introduction of the independent director system has important theoretical and practical significance. And, with the enhancement of the law of independent director system, independent director system is gradually play a role, of course, there is still a long way to go. The independent director system has been implemented for nearly13years in China, the independent directors on corporate oversight from the initial no independent directors say "no" until now there are a great part of the independent directors of listed companies began issue non-consent opinion. At the same time, we also see, the independent directors that were once thought to be a good occupation which gain both fame and wealth, but in today’s independent directors market there has emerged more and more independent directors to resign. As can be seen from the information disclosure of listed companies, in addition to the expiration and death, there are a large part of independent directors resigned for personal reasons and other reasons, etc...At the same time, we also can see that there are many listed companies don’t disclose the specific reason for the resignation of independent directors. We have to think that in such a position which can gain fame and fortune at the same time, why is there so many independent directors to resign? When independent directors resign, what’s the main consideration of them? From the above independent directors’ monitoring role changes, we have seen independent directors are gradually playing its monitoring role. This paper is based on such a background, to study the monitoring selection of the independent directors.Using the date of independent directors’resignation and independent directors’opinion as a substitute variable, this paper study the factors that impacting independent directors’monitoring selection. Although the independent director was once considered a career which can gain fame and fortune, but the benefits and risks coexist, the independent directors’ profession is no exception. With the establishment of civil liability regime in China’s listed companies, the independent directors are also facing huge risk in his position. Independent directors on the one hand, enjoying considerable reward in substance and reputation according to their contribution to the companies, but also bear the risk. As a rational economic person, when independent directors make decision in this special position, they will consider the costs and benefits. When the risk is higher than the benefits, the independent directors will resign; similarly, when the risks of independent directors voiced agree opinions are higher than the benefits, the independent directors will choose to say "no." This paper studies the factors that affect the independent directors’ monitoring selection by conducting Logistic regression. We find that firms with more severe agency problems are prone to experiencing independent directors’ saying "no" and independent directors’ resignation. We also find that firms with higher information risk are prone to experiencing independent directors’ saying "no" and independent directors’ resignation.Innovations of this paper are:(1)The purpose of introducing the independent director system in China is to solve the agency problems existing in China listed company. Therefore, since the introduction of the independent director system, domestic and foreign scholars have studied whether independent director play an important role in reducing the agency problem in listed companies. However, there are few scholars studied the influence of the agency problems to the directors’ monitoring decisions. Therefore, in order to fill this blank, this paper from the perspective of agency costs, studying the factors that affect the independent directors’ monitoring decisions.(2)Similarly, many researches study on the independent directors’ monitoring decisions recently. However, there are few scholars studied the influence of the information risk to the directors’ monitoring decisions. Therefore, in order to fill this blank, this paper from the perspective of information risk, studying the factors that affect the independent directors’ monitoring decisions.(3) At present, the domestic academic research studied the influence of independent directors on corporate performance, and examined the experts’role of independent directors. But it is universally acknowledged that the original intention of independent director system is to solve the serious agency problem of listed companies. Therefore, the monitoring role of the independent directors should be investigated as an important aspect of the study of the independent director system, while the current domestic academic researches on the monitoring role of independent directors is also quite small. This paper studies the factors that influence the independent directors’ monitoring decision from the perspective of independent directors’ opinions and the resignation of them. We also study the effect after independent directors issue non-absent opinions and resignation in this paper.