Herd Effect And Supervision Behavior Of Independent Director

With the development and expansion of China’s capital market.the independent director system is required to be established in the board of directors for the standardized governance of listed companies.However,the performance of independent directors in listed companies in China is unsatisfactory.In the fraud scandals of some listed companies,the independent directors collectively lost their voices and did not question the unreasonable motions.This shows that the supervisory function of the independent directors is not acting,and the independent directors have been dubbed as "Vase Directors" and "Human Directors" by the outside world.In this context,this paper examines the reasons for the inaction of the independent director’s supervisory function from the perspective of herding,and adjusts the herd effect of independent directors through the level of allowance and gender of independent directors.In the on-site experiment of independent directors’ herd effect test,we used three people as a group to play roles A,B.and C,through sequential decision-making,and tested that independent directors produced voting decisions in the case of incomplete private information.We found the herding effected in the voting,and that independent directors ignored their own private information and blindly followed others’ decisions.In addition,through the gender control of the role C(the main role of testing the herd effect),we found that female independent directors pay more attention to their private information in the investment decision-making process of the board of directors,while male independent directors are more likely to follow other decisions.This shows that female independent directors are less prone to herd effects than male independent directors.After discovering that the independent directors will have a herd effect in the voting decision process,this paper will explore how to suppress the occurrence of the herd effect.The allowance for independent directors is the only effective explicit incentive and has different provisions in the implementation of listed companies.Through the exploration of the independent group’s herding effect under the different allowance levels of independent directors,it is found that the reward and punishment of the independent director’s allowance level at a high level helps to suppress the occurrence of the herd effect,that is,the independent directors will reduce the follow-up of others’ decisions and pay attention to their personal information.The innovation of this paper is to explore the reasons for the inaction of the independent directors’ supervision function from the perspective of herd group effect,and to provide the advice of the independent group’s herding effect through the gender and allowance of the independent director.Herd effect is mostly used in financial fields such as institutional investors or individual investors.In corporate governance,it is also used in the study of executive herd effect.This paper studies the behaviour of independent directors’ supervision functions through the perspective of herd effect,supplementing the research in this field.Moreover,through the influence of gender on the herd effect,it enriches the role of female independent directors on the board of directors.And the allowance for independent directors mainly uses fixed allowances and subsidies for the number of participants in China.Each company’s implementation plan is different and laws do not make corresponding provisions.From the different level of independent directors,this paper study the impact on the herding effect of independent directors,it is possible to improve the recommendations and thinks about the system of independent directors’ allowance design.In some extent,this paper can provide some suggestions that independent directors can seriously perform supervision functions.