Test On Minority Investor Protection And The Independent Directors With Legal Background

Participants in the securities market have diversified characteristics,these markets are made up by multiple kinds of investors,providing continuous cash flow for the securities market.Investor protection has always been the focus of securities supervision in the capital market,and it is also an eternal topic for scholars from various countries in corporate governance filed.Compared with well-developed western capitalist countries,China has a higher level of equity concentration on listed companies.It is more easier to trigger interest conflicts between controlling shareholders and minority investors,which is usually called "the second type of Principal-Agent problem".As minority investors dominate the largest proportion in Chinese capital market,more attention should be paid on protecting them.In order to improve the structure of the board of directors and to resolve issues such as internal control in corporate governance,the independent director system appears.As one of the company's internal governance mechanism,the existence of independent directors can ease the principal-agent problem,protecting the minority investors.The "Law and Finance" theories represented by La Porta,Lopez-de-Silanes,Shleifer and Vishny(LLSV)break the traditional concept,they point out that the juristic intervention is effective for the validity of the company 's contract and the capital market.China is a civil law country,juristic protection on investors is relatively lower than those countries with common law system,such as the Great Britain and the United States,valid investor protection has not yet been established to protect the external juristic environment.Therefore,under the situation that the listed companies in China often have a monopoly,it is necessary to discuss the relationship between external juristic protection on the rights of minority investors and the independent director system.This paper analyzes the current domestic institutional background and investor protection situation.After conducting relevant theoretical analysis and reviewing relevant academic researches,the sample of listed companies from 2002 to 2014 was used to examine the relationship between independent directors with legal background and minority investor protection.The background data of the independent directors of listed companies is obtained through manual sorting.The conclusion indicates that under the full sample,the better external juristic protection on investors,the more independent directors with legal background were hired by listed companies.At the same time,with the implementation of new "Company Law" and "Securities Law" on January 1st,2006,more detailed and reinforced investor protection was carried out.As the new law required,the sample was divided into two groups as low litigation risk period and high litigation risk period.This paper finds that with the change of legal environment,the relationship between the degree of protection of investors and independent directors with legal background is significantly different between the two litigation risk periods.The positive effect on the protection of the rights of minority investors from independent directors remains,and the effect is higher than the low litigation risk period.This shows that with the continuous improvement of the juristic system,the independent director system can play the role better.This paper validates the function of independent director system in protecting the minority investors,provides a reference to improve the system of independent directors,and strives to make the independent director system effectively safeguard the rights and interests of minority shareholders.Participants in the securities market have diversified characteristics,they providing cash flow for the securities market.Investors protection has always been the focus of securities supervision in the capital market,and it is also an eternal topic for scholars from various countries in corporate governance filed.