A Study On Board And Corporate Governance Effectiveness

Corporate governance focuses on two classes of agency problem, one is between stockholders and board of directors, the other is between board and management. As the agent of owners and the leader of the management, the board of directors plays a crucial role in governance structure, also has great effect on corporate development. Based on the importance of boards, we must improve the efficiency of the board and corporate governance when developing modern corporate system. This paper works on the board governance mechanism and effectiveness, examining whether the board of directors solves the agency problem effectively and perform well with its various functions.The paper begins with survey of the empirical and theoretical literature on the board and corporate governance, then discuss the board mechanism in detail from its function, structure and operation respectively. We view the board' functions contain not only monitoring management, but also strategy leadership and human resource provision, and board composition depends on different environment and different function design. After these analyses, we suggest improving board effectiveness by rationalizing board structure and amplifying its diverse functions.Theoretical model and empirical research are useful to find effective way improving board effectiveness. To date, there has been little modeling of the operation of the board as an independent entity and active player in the corporate finance literature. In this paper, we create a simple model about board's decision process which is so important to board effectiveness. This model predicts that directors' ejection penalty causing by inside control has great negative effect on board effectiveness. To further the study, we provide an empirical test on endogeneity of board and ownership structure, then examine the determinants of them by means of simultaneity equation, finding some significant result such as management ownership is affected by firm performance, as well as relates to outside director ownership. These findings tell us that there exist some substitute and complement relations between governance mechanisms, which will be important to the research of how corporate governance works.In the end, the paper summarize the whole research and result, and then give some suggestions about how to improve board structure and corporate governance efficiency..