Research On Supply And Demand Analysis Of Board Network And Its Impacts On Investment And Finance Decisions

Guanxi is the essential feature of all economic behaviors, being an important channel for support, influence and information flow among individuals or organizations. Network of relationships just as spiderwebs cover the whole society, thus the whole society becoming the set of all kinds of relationships. In China, the relationships oriented principle has been accepted by the social public. Social network plays important roles to success for enterprises, because enterprises can be access to valuable information and fund resources, thus contributing to make investment and financing decision with low risks and high rewards. However, individuals’social network is one kind of valuable potential resources, only when converting individuals’social capital into enterprises’social capital with themselves absorbing capacity individuals’ relation resources can be translated into enterprises’available resources. As a reliable and low-cost flow channel among enterprises, Interlock directors network is an important social network, which contributes to strengthening information communications and resources acquisition among connected enterprises.So far, researches on board networks aboard mainly focus on kinds of internal social network (such as current employment, past employment, education, nongovernmental organization) and external network(such as interlock directors, business network) which exert great effects on corporate behaviors(such as M&A, finance policies, innovation). By contrast, researches on board networks at home are at its initial stage reflected in both research contents and methods, a few of scholars have explored how interlock directors in certain types of enterprises influence M&A, compensation incentives and performance. Under the unique background of human relationship in China, we cannot copy foreign researches methods and conclusions blindly or mechanically; contrary to foreign researches, scarce domestic studies about board networks are unable to provide guidance for network construction and optimization, which offers a moment for this paper. Based on social network theory, exploring formation and Function mechanisms of board networks with Chinese features has great theoretical significance and practical significance, in terms of theory, this paper contributes to further integrations of social network theory and network governance theory, thus making for relatively perfect board network theory; this paper does not only adhere rigidly to centrality indicators adopted by existing researches, but adopt structure holes eliminating redundancy relations at first attempt so as to verify board network effects, thus making more scientific and reasonable conclusions; in the context, this paper firstly analyzes the formation motivation of director networks from aspects of supply and demand, and then verifies its impacts on investment and financing decisions, thereby constructing relatively complete formation and function mechanisms for board network.This paper primarily proceeds to analyze the formation mechanism from perspectives of labor markets and corporates. In terms of labor markets, this paper creatively quantifies the supply of director labor market by way of creating the director market supply index, we find that the market supply has important effects on independence of the board. Compared with state-owned and monopoly companies, the local director markets exert greater influence on non-state-owned and competitive companies; on the contrary, the effects of the center director markets on the state-owned, monopoly and larger companies are greater. After excluding the mandatory demand, the market supply has similar effects on the need for autogenic.In terms of corporate-level, this paper explores the purpose of network construction from an overall point of view and then analyzes its’spillover effects on performance in order to provide direct evidence for constructions of board network. This paper creatively brings structure holes into analysis of interlock directors’effects on performance and compensation incentives in order to explore the purpose of construction of board network. This paper finds that, directors networks improve performance significantly; the central position and structure holes position exert negative effects on compensation incentives in current period, only when performance has been improved in current period, directors can obtain much more compensation in the next period, followed by performance improvement. Therefore, the purpose of construction of board network is not motivated by individual’s needs but motivated by enterprise’s needs, when enterprise’s needs have been satisfied, directors can obtain great rewards in return.In terms of function mechanism, this paper explores how both information effects and resource effects influence investment and financing decisions. From perspective of finance policies, this paper firstly separate information effects from resource effects, that is, each of effects plays what roles in coping with financial constraints. This paper finds that, board network have significantly positive impacts on quality of information disclosure, after information effects decomposed, resource effects plays also positive effects on financial constraints, thus verifying both of effects; however, in sub-samples, both of effects do not exert significant effects on financial constraints in state-owned enterprises, while both of effects give full play to financial constraints in non-state-owned enterprises.With regard to investment decision-making, following transmission routes of board network from finance policies to investment policies, this paper examines how board network play roles in investment decisions and then performance. This paper tentatively analyzes board network effects on investment efficiency including overinvestment and underinvestment, and then explores the difference of impacts between distinguished types of enterprises with diverse forms of ownership. This paper finds that, the listed companies are closer to the kernel of board network, investment efficiency is much lower; by contrast, when the public companies locate in the structure holes positions, their investment efficiency gets improved and will be higher. After distinguishing overinvestment from underinvestment, the central position stimulates the companies’overinvestment and underinvestment behaviors, and the structure holes position curbs the overinvestment and underinvestment behaviors. In subsamples, the central position plays significantly positive roles in both state-owned and non-state-owned companies’inefficient investment, reflected in aggravation of overinvestment and underinvestment; the structure holes position can decrease both state-owned and non-state-owned companies’ inefficient investment, that is, inhibiting overinvestment behaviors and reducing underinvestment behaviors with more significant roles in non-state-owned companies.