| With the decentralization of equity, the separation of ownership and control lead to a serious agency problem. Managers take advantage of the information and actually control the Board of Directors, which means "insider control". The board of directors became management tools or spokesperson, instead of the role of monitor and controller. Corporate scandals in the US, represented by Enron Scandal, pushed corporate governance movement to the climax. Agency problem seriously damage the interests of companies, shareholders and other stakeholders. There is a need to find a new mechanism to reform the traditional corporate governance structure. The independent director system is regarded as the important measures to reform and revive the company’s board of directors and rapidly adopted on a global scale. The Chinese capital market was established in the1980s to fund the reform of ailing state-owned enterprises (SOEs). A typical IPO in the early years of the Chinese market often began with the restructuring and ’financial packaging’ of selected SOEs into corporations. As a result, the boards of listed Chinese firms were often dominated by directors from the parent SOEs or a few controlling government agencies. Outside investors, such as minority shareholders, were thereby put in a position inferior to that of controlling shareholders and insiders, which played out in the making of business decisions. This ill-formed corporate governance structure was further hindered by the fact that around two-thirds of shares were not tradable in the market. To improve corporate governance, protect the interests of investors, the China securities regulatory commission, with the trend of corporate governance reforms, issued a guidance of "On the guidance of establishing the independent director system of listed companies" on August16,2001, which has put forward clear requirements of the number of independent directors in listed companies and qualifications etc., marked the full implementation of the independent director system in our country. However, there are a lot of questions about the performance of China’s independent directors, which are named of "vase directors" or "accomplice directors". Therefore, we need to rethink this system:why did effective independent director system in foreign developed markets function differently? Is this as a whole or in part independent director has failed to effectively perform their duties? What kinds of features should a competent independent director have? Does the role of the independent director to play under the influence of internal and external environment, such as enterprise property?Since Fischer Black (1976) put forward the "dividend puzzle", a large number of studies support the validity of the agency theory to explain the dividend policy. Cash dividends reduce the retained earnings of the enterprise, reduce the corporate cash holdings, and restrain agency cost which caused by managers’push of free cash flow.. At the same time, cash dividend has also weakened the basis of the "Tunneling" of controlling shareholders. Therefore, from this perspective, the cash dividend payment can alleviate the conflicts between the controlling shareholders and minority shareholders. Dividend policy is one of the main areas of agency conflict between management and shareholders, and the board of directors is the ultimate internal governance mechanism to protect the interests of shareholders. Because of the board of directors in a dominant position in the process of dividend policy, the independent director to join the board of directors, has important influence on the company’s dividend policy, can through the choice of dividend distribution policy to reduce agency problems between managers and shareholders. Therefore, dividend policy can be used as a measure of assessing the independent directors. Based on the above analysis, this paper study the impact of the independent directors’features, including the proportion of independent directors, tenure, multiple independent directors, sex, compensation and age, on the company’s dividend policy. Through the empirical analysis of characteristics of the independent director’s influence on the company’s cash dividend policy, we can draw some useful conclusion to perfect the existing independent director system.Based on Agency Theory and Upper Skeleton Theory, this paper chooses13638observations from stock markets of Shanghai and Shenzhen A-share listed companies during2009and2012to study the impacts of proportion of independent directors, tenure, multiple directors’identity, gender, age, and compensation on the company’s cash dividend policy and to discuss whether the effectiveness of the independent director’s supervision responsibilities is affected by its characteristics. The main conclusions of this paper are as follows:(1) Proportion of independent directors has no significant effect on the company’s dividend payment. The proportion of independent directors in China mostly is a third, and there is no significant difference between companies. The reason of this situation may be that the introduction of independent director system in China has obvious nature of government leading. The purpose of introduction of independent directors of listed companies is to meet the requirements of regulatory policy, not voluntarily introduced, so the independent director’s proportion has no significant impacts on the company’s dividend policy.(2) Independent director tenure has a significantly negative correlation with the company’s cash dividend payment, which means that the longer term independent directors are, the lower the company cash dividend level is. Long-tenure independent director can ensure the independent directors have plenty of time to be familiar with the company’s strategy, internal control and risk process and external competition environment and other information, but according to social network theory, Long-tenure independent directors are apt to develop and solidate the friendship with management of insiders, which lead to independence impaired, and inability to make effective supervision of insiders. So it’s necessary to set a limit to independent director’s tenure.(3) Multiple board seats held by independent directors are positively related to the cash dividend. The company cash dividend increases with the increase of multiple board seats held by independent directors. Holding multiple board seats signals that independent directors have good reputation in the market and they can raise the enterprise’s value. The more independent directors holds board seats, the higher the independent director’s reputation. And holding seats as independent directors in different companies could help master of knowledge and rich experience, which may lead to more reasonable decision to protect the interests of the shareholders.(4) Proportion of women independent directors is significantly positively related to cash dividend. The greater the proportion of women independent director, the higher the level of cash dividend is. Thus, women independent directors have played a positive effect in corporate governance. Women independent directors, especially those who have rich professional knowledge and social experiences, joining the board of directors can significantly increase the discussions and alternatives in the board meetings, produce more different opinions and information communication, and eventually improve the scientificalness of decision-making by the board of directors to better their supervision duties.(5) Independent director’s compensation is significant positively related with the company’s cash dividend payment. When Independent director compensation is higher, the level of cash dividend payment is also higher. Material incentives have a positive impact on independent directors to fulfill their duties of supervision. The independent directors need to use their professional knowledge and social experience, and invest a lot of time and energy in order to fulfill their supervision duties. Accordingly, it can arouse the enthusiasm of independent directors by giving them reasonable compensation that matches their pay without prejudice to the premise of independence.(6) The independent director’s age has no significant impact on cash dividend policy. On the one hand, this may be the result of that the independent directors of listed companies in China are mostly successful people who have rich management experience and social experience, therefore, age has small influence. On the other hand, descriptive statistics analysis showed that the directors of the listed companies in our country were around the age of50, mostly middle-aged people and has obvious homogeneity phenomenon on age structure.(7) The relationship between the characteristics of the independent director and the cash dividend payment are under the influence of enterprise property rights. In state-owned enterprises, the proportion of independent directors, multiple board seats, salary and age have no significant influence to the company’s cash dividend; the tenure of independent director has significantly negative correlation with the cash dividend, while the proportion of women independent directors is significantly positive related to cash dividend. In non-state enterprises, the proportion and tenure of independent directors has no significant influence to cash dividend while multiple board seats, the proportion of female independent directors, compensation and age are significantly positively related to cash dividend. Comparing two sets of results, the characteristics of independent directors in the state-owned enterprises (SOES) have less effect on the cash dividend, which may be associated with the nature of property rights of state-owned enterprises. Although most of the state-owned enterprises have established the board of directors and board of supervisors, but most of the system construction process is under the direct command and control of charge, so the independent director system is useless.According to the results of this study, this paper finally puts forward several suggestions. Firstly, proportion of the independent director should be raised, especially in the listed companies where the first big shareholder holds less than30%shares. Secondly, setting a limit to the tenure of independent directors is necessary. It is recommended that we could refer to "Company Law" of the state of Michigan to shorten the longest term of independent directors in our country to3years. Thirdly, we suggest improving the proportion of women independent director. More women’s participation in the board of directors can play the advantages of women in management. Fourthly, perfect the incentive mechanism of independent directors. In terms of reputation mechanism, we need to set up independent directors market in China to create conditions for the functioning of reputation mechanism; In terms of material incentives, independent director should be paid that match his giving. It may be changed to a company’s equity, such as restricted stock or stock options, which could help prompt independent directors to stand in the position of shareholders.The main contributions of this paper are as follows:First, based on the characteristics of independent directors as a focal point of research, including the proportion of independent directors, the tenure, multiple board seats, sex, compensation and age characteristics, these features represent the "quality" of the independent director as well as "quantity" of the independent director. This helps to explain the conflicts that why the performance of companies’ with the same proportion of independent directors have obvious differences in performance and governance. The result will also be able to find problem in the independent director system, and provide direction for the improvement of the independent director system.Second, this paper use cash dividend payment as intermediary variables to study the influence of characteristics of independent directors. By investigating the relationship between company’s dividend payment and the characteristics of independent directors, this study theoretically expand the existing research on characteristics of independent directors, enriched the logical architecture of existing research. |
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