An Emperical Study On The Influence Of The Characteristics About Family Control Right On Board Independence

The prevalence of pyramid ownership structure makes the cash flow right deviate from control right in family-controlled firms of our country, and the controlling family is prone to expropriate the interests of minority shareholder because of the relatively weak protection for external investors at present stage. Although the equity division reform has been completed, the high proportion of restricted share makes the positive effects hard to work. Because of the concentrated ownership, the controlling family has great influence on the board of the listed company. To obtain the private benefits of control, the controlling family is likely to appoint more family members or associated members to the board of the listed company, and reduce the others, which makes the board lack independence and become a tool while the controlling family "tunneling" the listed company. In this analytical logic, we first looked back on the related literature, and then we mainly use the theory of "tunneling" to hypothesize the influence of the characteristics about family control right on board independence. Next, using the panel date of 225 family-controlled listed firms over the period of 2006 to 2008 and the linear regression model, we studied the influence of the characteristics about family control right on board independence. Finally, according to the empirical evidence, we give the relevant proposals to Securities regulatory authorities, family-controlled listed firms and the external investors. This research will help us understand the structure of the board in family-controlled listed firms from the perspective of "tunneling", and provide indirect experience evidence for family controlling on the board structure of directors to "tunneling" the listed company.Our empirical evidence suggest:to "tunneling" the listed company, the controlling family tend to appoint more family members or associated members to the board of the listed company, and reduce the others, which make the board lack independence and become a tool of "tunneling", and the greater the motivation of "tunneling" is, the more obvious the tendency will be. Specifically, our conclusion are as follows:(1) the board independence is at a low level while the controlling family occupy a high percentage of seats in the board of the listed firms on the whole;(2) compared with direct control, the board independence of family-controlled listed firms under the pyramid ownership structure is worse;(3) the proportion of the cash flow right accounted for control right is positively associated with the board independence;(4)the family control right is negatively associated with the board independence, and the correlation coefficient is greater than family share proportion, the significant level is also higher; (5) the independence of the board differs with the way the controlling family obtain the control right:the board independence level in shell listed family firms is worse than the founding family firms;(6) equity and balance degree can significantly enhance the board independence, and the lack of other large shareholders which can balance the family shareholder is another important factor besides the family controlling on the board structure of directors which leads to the low level of the board independence on the whole.