The Institutional Change Of Dependent Directors And Firm Performance

Since China Securities Regulatory Commission has issued "the guiding principlefor listed companies to establish the institution of independent directors"in 16th, Augest, 2001, the institution of independent directors was widely promoted inour country. Different with dispersed share-owned structures in English and the U.S., whose main object of inviting independent directors is in order to smooth downinvestors' complain about managers' high compensation and reduce the risk of beinglitigated. Our reason why we introduce the independent directors is to reduce largestshareholders' over-controlling, which lead by share concentration and so to protectinvestors. Because of the share structures' own institutional defect, the independentdirectors were controlled by large shareholders and lose their independence. Theinstitution of independent directors' efficacy were doubted.On the basis of deeply understanding the theory of institutional change, thispaper analyzes the internal reason and process of the institution change anddistinguish two kinds of changing styles—spontaneous institutional change andcompulsory institutional change. Using econometrics and statistics method, the paperanalyze the data of public companies listed in SZEX and SHEX in 2003 and 2004.Wefound that the institution of independent director has a active effect on firmperformance. What's more, we notice that, the spontaneously introduced institution ofindependent directors have more active effect on corporate value compared withcompulsory introduced one. At last it gives some suggestion to improve the institution of independent directors.Confined by the attainable data, index choosing is not sufficient enough.