The Influence Of Resignation Of Independent Directors With Administrative Background On Corporate Cash Holdings And Its Economic Consequences

In the context of principal-agent theory,the main goal of designing an independent director system in a modern company is to supervise management and mitigate agency problems,so as to protect the interests of investors.A large number of papers have confirmed that independent directors play a supervisory and advisory role to reduce agency costs and to increase company value.Recently,scholars gradually discovered that the independent directors are not homogenous,and are affected by their personal characteristics,gender,work experience,etc.Among these factors,the network of special political relationships owned by the independent directors of the government has drawn great attention to the company economic consequences.Existing studies have found that independent directors use their own “proprietary political capital” to bring benefits to the company,e.g.,helping companies get bank loan financing facilities,obtaining tax incentives,and government subsidies.Therefore,an official's independent director with administrative background may become a means for the listed company to deliver benefits to the relevant parties.To this end,the Central Organization Department promulgated “Document 18” to regulate the part-time behavior of government officials in enterprises in 2013,which led to an upsurge of resigning the independent directors in the listed companies.For the studies about the economic consequences of the forced resignation of independent directors with administrative background,scholars don't have uniformed conclusions by mainly observing market reactions,and pay less attention on the impact on corporate behavior.Cash holding is the key to the company's asset allocation and the liquidity risk management,and is an important financial behavior decision of the company.The amount of corporate cash holdings significantly affects its capital cost,investment level,and profitability,which is related to the value of the company.Therefore,this study focuses on whether the forced resignation of independent directors with administrative background affects the corporate cash holding behavior,and what value effects it will have.This study took the Shanghai and Shenzhen A-share listed companies from 2010 to 2015 as a sample,and constructed the dual difference model to examine the impact of the forced resignation of independent directors with administrative background on the company's cash holding behavior.Furthermore,examined the value effect of the behavior change of corporate cash holdings that is caused by the forced resignation of independent directors with administrative background.The results demonstrate:(1)the resignation of independent directors with administrative background increase corporate cash holding;(2)the resignation of independent directors with administrative background has more significant effect on the cash holdings of the privately-owned companies than the state-owned enterprises';(3)the increased cash holding of the companies that is caused by the resignation of independent directors with administrative background has a positive value effect;(4)the more the resignation of independent director with administrative background impacts,the greater the company's cash holding effect increases;(5)the resignation of independent directors with government official background increase corporate cash holding,but the resignation of independent directors with university official background have no significant effect on corporate cash holding.The results show: the "Document 18 " policy forces the resignation of independent directors with administrative background,it will increase the uncertainty of the company's future operations and raise the external financing costs,prompt the company to increase cash holdings to avoid financial risks and to reduce the cost of capital,and help improve the company's value.The research not only provides a feasibility basis for regulating the official part-time behavior,but also gives a way to deal with macro-policy shocks and to avoid systemic risks by adjusting the market entities behavior.