Reputation Incentives And Independent Director Behavior

Since Ferris (2003) put out busy hypothesis, whether multi-seat independent directors make a contribution to corporate governance has been questioned. Serving on more number of seats, their equal distribution of time and effort to each listed company is less. However, what will happen if the independent director is not evenly distributing their time and energy what inspires the independent directors to allocate more time and energy to the company they serve? In this paper we study an important motivating factor:the independent directors’reputation.Independent directors’ reputation is affected by the scale of enterprise they serve in. The larger the scale, the higher the degree of visibility, in this way, it provides higher reputation incentives to independent directors. In order to measure the relationship between reputation incentives and the independent directors’behavior, we arrange the company that multi-seat independent directors serve in by the the company’s market value. Besides, in robustness tests we arrange the company by its media attention again. Secondly, for investigating the influence of independent directors’reputation incentives on corporate performance, we divide the independent directors into two classes: independent directors motivated by reputation and independent directors not motivated by reputation. Then, we study whether the proportion of independent directors motivated by reputation will influence company’s performance. Our data are from 2008 to 2013. By logistic regression and ols regression, we found that:multi-seat independent directors didn’t treat the companies they serve in equally. They are less likely to miss the board meeting on the boards of their relatively more prestigious firms. The attendance rate is also higher. Furthermore, firms with more independent directors for whom this is a relatively more prestigious directorship are associated with better operating performanceBased on the perspective of muti-seats, this article linked the multi-seat independent directors and reputation incentives together to study the relationship between reputation incentives and the independent directors’behavior. Our research has enriched the reputation theory busy hypothesis. On one hand, we verify the effectiveness of the reputation incentive based on a new perspective; this will provide theoretical support for the use of reputation system in china. On the other hand, we find that multi-seat independent directors didn’t treat the companies they serve in equally; this will provide new ideas for listed companies to hire and use independent directors.