The Background Characteristics Of Independent Directors And The Listing Corporations’ Investment Efficiency

The separation of ownership and control leads to a proxy conflict between managers and shareholders, and thus leads to the inefficient investment behaviors. Inefficient investment will reduce the value of the company and increase business risk and financial risk. Therefore, how to solve the agency problems and improve the efficiency of investment through good governance of companies has been a matter of concern of the theoretical and academic circles.Since the 1990s, China began to gradually introduce the independent director system in order to improve corporate governance and standardize corporate operations. In"the Establishment of Independent Director System in Listed company guidance" issued by China Securities Regulatory Commission in August 21,2001, and the new"Company Law" enacted by the NPC Standing Committee in October 27,2005 required listed companies to establish an independent director regime. However, the establishment of an independent director system does not necessarily solve the principal-agent problem, different independent directors will affect their oversight functions and advisory functions differently. In this regard, the paper study the influence of independent directors’ background characteristics to over-investment and under-investment behaviors in our country to identify what type of independent directors can better reduce inefficient investment.This paper takes 2008-2012 all A-share non-financial listing corporation of Shanghai and Shenzhen Stock Exchange as a sample, uses the number and proportion of executive background, banking and investment banking background independent directors as proxy variables of background characteristics, and then studies the relationship between background characteristics of independent directors and inefficient investment. The conclusions are as follows:There was no significant relationship between the number and proportion of executive backgrounds of independent directors and non-efficiency investment and underinvestment, but significant negative correlation to overinvestment. This shows that, the listing corporation can reduce the overinvestment level by appointing executive background independent directors.There was no significant relationship between the independent directors’ background characteristics and investment.The number of investment banking background independent directors and underinvestment is significant negative correlation. The relationship between the independent directors’ background characteristics and non-efficiency and over investment has no significant correlation. This shows that the independent director of investment banking background can inadequate effective governance of listing corporation inefficient investment phenomenon.We further investigated the effect of background of independent directors on corporate investment under different nature of property rights. We discovered the governance role of independent directors of executive background only exists in the state-owned listing corporation, and has no effect in non state holding company; while the correlation between investment banking background of the independent directors and the lack of investment in non state-owned enterprises is significant.In summary, the independent directors of listing corporation executives background can reduce the degree of over investment, and this effect in the state owned enterprises is more outstanding; independent director of investment banking can reduce the underinvestment phenomena to a certain extent, and this effect in the non-state owned enterprises is more outstanding.