Do Independent Directors Oversee It?

Even if the independent director system has been implemented and recognized by financialpolicy department in the whole worldwide, questions about the effectiveness of board independence are still unable to achieve unanimous theoretical and empirical conclusion. Therefore, With the view of opening the "black box" of decision of the independent directors, according to the resource dependency theory and relational capital social network theory, we tried to study governance practices of independent directors under the situation that they are faced with insufficient incentives. We choose two angles to research----the independent directors "willing"(external labor market constraints) and "could"(social network) to seek the evidence that independent directors protect the interests of shareholders. Furthermore, we validate the value of independent directors effectiveness.Firstly, in order to understand the current status of research on this issue, we reviewed the relevant literature. Based on that, we construct two-stage dynamic game model to prove the impact of external market and social network for independent directors to perform their duties by theory.Combined with Chinese unique disclose data of independent directors to, market supply database and network database, we used the data from2005to2011to analyze the factors affected performance of independent directors. In addition, considering our particular system of property rights, we performed grouping regression according to actual controller, nature of the industry, market-oriented level. Besides, we used the marketing and network index as an instrument for board independence to test the effectiveness of independent directors’oversight.We found that one the one hand, improved outside directors market is an important factor in the relationship between the independent directors’reputation and the performance of their duties; on the another hand, they do not rely on their social networks to get information resources to achieve better performance. We concluded that the construction of board networks aims ant personal benefits instead of organizational gains. Accordingly, the independent supply directors only achieve limited market supply market which does not play the role of restricting independent directors "moonlighting" behaviors. In the further test, the company which exists independent director objection has been testified a higher market value in future. The objections of independent directors are more likely regarded as a good signal of sound corporate governance, which can enhance investor expectations about the future value of the company.