An Empirical Study On The Relation Between Independent Directors And Corporate Performance

The independent director system originated in the United States in1930s. Separation of ownership and control in listed companies resulted in internal control problems because the company’s owners and managers may be inconsistent. In the early days, managers may be the largest shareholder, but with the dispersion of shareholders, the chance of being controlling shareholder is relatively small. Meanwhile, in order to meet specialized business requirements, enterprises also need to have a professional manager. Small parts of the shareholders are selected to be the board of directors. The shareholders’meeting authorized the management to the board. Then the board authorized the management to the professional managers. The U.S. introduced the independent director system in order to protect the interests of all shareholders, and enhance the independence of the Board.China’s listed companies have some unique problems with Chinese characteristics. For instance:non-tradable shares and tradable shares. There is supervisory board in China but most members are from the internal, and sometimes can not play a strong oversight role. In2001, independent director system was introduced in China hoping to resolve the issues of corporate governance.From formal introduction to the present, the independent director system has already experienced nearly10years. What is the status of Chinese independent director, whether the independent director system has had an impact on corporate performance and what kind of impact it is has always attracted the attention of scholars.Previous researches have focused on whether a listed company has independent directors and whether the number of independent directors has impacted on the corporate performance. Few people consider the other characteristics of independent directors. In this paper, the independent directors’ age, gender, average salary, average numbers of part-time jobs have been taken into consideration.The study sample is listed companies in2009with the modeling method of regression analysis to find the correlation between characteristics of independent directors and corporate performance. Finally, the corresponding recommendations were proposed.The overall framework of this study includes the following5components:Part Ⅰ (Introduction) includes research background, significance, research ideas and methods.Part Ⅱ (theoretical part) introduced three theoretical bases of the independent director system:Principal-agent theory, Stakeholder Theory and Incentive Theory. Also the company’s performance evaluation is analyzed and selected.Part Ⅲ (literature review):review of domestic and foreign literature about the relationship between characteristics of independent directors and corporate performance.Part Ⅳ (positive part):Using listed companies in2009as samples with the modeling method of regression analysis to find the correlation between characteristics of independent directors and corporate performance. There are seven assumptions, seven independent variables and three control variables. After the correlation tests and descriptive statistics, the regression analyses come out.Part Ⅴ (conclusion):conclusions and recommendations on the correlation between characteristics of independent directors and corporate performance.In this paper the main points are as follows:The proportion of independent directors and corporate performance are significantly correlated, indicating that some characteristics of independent directors can promote corporate performance. Independent directors have played their oversight functions on management and prevented the misconducts.There is no significant correlation between the average pay and company performance. Independent directors did not change their attitude toward company because the pay.Average attendance and the company’s Tobin Q value are significantly correlated which shows that active participation of independent directors can enhance the value of the company.Female ratio of independent directors and company performance are not significantly correlated.The average number of part-time jobs and the company’s Tobin’s Q values are positively correlated. If the independent director has several part-time jobs, he must have a good reputation and outstanding ability, and use his professional knowledge and social resources to the company which can result positive effect.The place and age of independent directors and company’s performance are not positively correlated.So this paper comes to the conclusion that the independent directors do have positive effect on the company, but situation varies:those independent directors with high reputation and outstanding ability can significantly improve the company’s performance.Therefore the paper recommended that independent directors should be motivated both from material and spiritual aspect. We should mobilize the independent directors’enthusiasm in material part without compromising their independence. Meanwhile, in the spiritual part we should maintain their reputation.