Research On The Effectiveness Of The Independent Director To Reduce Agency Cost

As an important factor in the corporate governance,the effectiveness of the independent director is studied by a vast number of scholars.First,by reviewing and sorting out the related literature at home and abroad,this paper finds that the direct researches on the relationship between the independent director and the agency cost are comparatively insufficient in the existing literature,most of which indirectly studies the impact of the independent director on the agency cost by studying the influence of the independent director on the corporate performance.Even though there are some literature directly studying the influence of the independent director on the agency cost,few scholars may consider the effect of equity structure and nature of property rights on the independence of independent director when they have researches on whether the independent director reduces the agency cost effectively.Therefore,it is meaningful to further analyze the effectiveness of the independent director to reduce agency cost.Then based on the corporate governance theory,the principal-agent theory and the independent director system,this paper theoretically analyzes the effectiveness of the independent director to reduce the agency cost for different kinds of equity structure and nature of property rights and proposes hypothesis of its own.This paper also carries out the researches on five characteristics:degree,government background,the rate of part-time,proportion and compensation.Next,using the data of the A shared listed companies in Shanghai and Shenzhen from 2012 to 2014 as the sample,this paper tests the effectiveness of the independent director to reduce the agency cost by empirical methods such as descriptive statistics,correlation and regression analysis.Based on the principle of conservatism,,this paper uses the factor analysis method to test the effectiveness of the independent director to reduce the agency cost.According to the results of the research:in the diffuse ownership company,other variables of the independent director can not significantly reduce the first kind of the agency cost except for the high proportion and high compensation of the independent director;in the stated-owned companies where the equity is highly-centralized,the high proportion,high degree,the government background and the high rate of part-time of the independent director can significantly reduce the first kind of the agency cost,but the high salary of the independent director can not significantly reduce the first kind of the agency cost.The high degree of the independent director can considerably increase the second kind of the agency cost,while other variables of the independent director can not significantly reduce the second kind of the agency cost except for the high proportion;in the non-stated-owned company where the equity is highly-centralized,other variables of the independent director can not significantly reduce the second kind of agency cost except for the high proportion as well as the government background.Finally,combining the results of theoretical analysis with empirical researches,we find that there are some problems in the selection and the process of the work of the independent director in listed companies in China.On the basis of above analysis,this paper puts forward some suggestions to improve the independent director system in China,which are expected to help the independent director reduce the agency cost effectively.