Who Has A Greater Say In The Process Of Selecting Prestigious Independent Directors:Chairman Or CEO?

The separation of ownership and the control in the modern joint-stock company is prone to produce principal-agent problem. That is to say, the managers will try to pursue their own interests at the cost of deviating from the goal of maximizing shareholders’value when there is a conflict of interests between managers and owners. Fama and Jensen (1983) believe that the dependent director system is one of main mechanisms to solve this problem. This opinion has been confirmed both in practical and theoretical aspects. In practice, as stipulated in the Standards of Corporate Governance for Listed Companies (2002), the listed companies should establish the dependent director system in accordance with the relevant regulations in order to maintain the overall interests of the company and protect the legitimate rights and interests of minority shareholders. In theory, most of the researchers study the independence of the independent directors and the influence of the independent directors on company performance from the perspective of principal-agent theory. However, these studies involved the endogenous problems and ignored the influence of the managers as providers of human capital and executives of enterprise decisions in the progress of selecting independent directors. That is one of the most important reasons that if public companies can improve the corporate governance and enhance companies’achievements by strengthen board independence did not reach a unanimous conclusion. Therefore, this paper will face the problem of the choice of independent directors from the perspectives of principal-agent theory and the managerial power theory. We can not only solve the endogenous problem, but also can examine the real decisive force of the structure of the board. In the context of our special system, only we find out the actual factors that influence the selection of independent directors, can us standardize the system of independent directors’ nomination and appointment and then improve the independence of the board of directors.This paper uses the data analysis tool of EVIEWS and SPSS and the Logistic regression model, examining the selection process of prestigious independent directors. Specifically, this paper uses the 2008-2013 samples of Shanghai and Shenzhen A-shares of public listed companies, examining the possible relationship between the prestige of Chairman and CEO.and the selection process of prestigious of independent directors. With the necessary theoretical and empirical analysis, the results prove that:(1) Compared with the non-prestigious chairman of board, the prestigious chairman is more likely to choose the prestigious independent directors; (2) Compared with the non-prestigious CEO of the company, the prestigious CEO is less likely to choose the prestigious independent directors. In the further study of the role of managerial power in the process of choosing a prestigious independent directors, this paper finds that:(3) when the managerial power is large, the prestigious chairman of the board has the positive influence on the choice of prestigious independent directors; (4) when the managerial power is large, the prestigious CEO of the company has the negative influence on the choice of prestigious independent directors.According the results of this paper, the possible contributions are as follows:(1) This paper faces the selection problem of prestigious independent directors directly from the perspectives of dynamic which can solve the endogenous problem and examine the real decisive force of the structure of the board as well. And this paper will take the choice of prestigious independent directors as the dependent variable to study the decisive factors of this process on the basis of the principal-agent theory and the managerial power theory.(2) This paper focuses on the important role of prestige in the selection process and how the chairman and CEO to balance the rights and costs brought by prestigious independent directors combined with the reputation mechanisms, which will provide a new direction to corporate governance.(3) In the end, this paper not only reveals the relationship between the present chairman of the board and the CEO of this company and the choice of prestigious independent directors, but also provides some beneficial enlightenment for the independent director system in the listed companies of our country.