Study On The Restrictive Factors Of Independent Directors Effective Performance

The system of independent directors originated from the sixties and seventies of the twentieth century. Its original purpose is to solve the "insider" control issues, which is the common phenomenon in listed companies. Because of the separation of ownership and management of listed companies,"phenomenon of internal control" will result when owners and operators have inconsistent interests. The phenomenon of internal control is just that the operators control the company. When the company’s operators have the "absolute" control on the company’s business decisions, while the external are not able to implement powerful supervise on it, operators will abuse, and harm shareholders’ interests certainly.In the vast majority of China’s listed companies,"the only big shareholder" phenomenon is very serious, big shareholders have a very significant motivation to occupy listed companies’ property and damage the interests of small shareholders. They use a variety of forms to make listed companies empty such as capital occupation, related transaction, borrowing guarantees and so on. The administrative penalty decision disclosed in the official website of China Securities Regulatory Commission involve instances about illegal occupation of small shareholders’interests by listed companies. Taking the necessary measures to protect the interests of minority shareholders of listed companies is imminent.Based on this, the independent director system is formally introduced into China under the impetus from the commission in2001. We expect that the independent directors can restrict the major shareholders encroachment after the companies set up independent directors, and then minority shareholders’interests can be protected. This is why we introduce this system. Since the independent director system has been implemented, its effectiveness is still being questioned. It is not strange to see Independent directors become a "vase of Directors" or "signature director". So what is the reason that making the reasonable independent director system didn’t play its due work? What factors play a restricted role on independent directors when they perform normal supervision?This paper has explored the factors that restrict the effect of independent director after systematically combing the existing literatures’research findings. First, this paper summarized previous theoretical studies and combined with the actual situation in China, then made sure that the independent directors in our country really had not played its expected role. It is common to find the example of occupation of interests of the minority shareholders of listed companies. Secondly, it reviewed and summarized relevant researches on the role of the independent directors, the performance of the independent directors and affecting factors to independent directors. Then it used six factors to design assumptions which can discuss restricting factors on independent directors’ value. The six factors are proportion、size、education, occupation, age, number of part-time of independent directors. Finally, it used the sample data selected from Shanghai and Shenzhen A-share listed companies on2011to empirical test the theoretical assumptions.The empirical results shows that the proportion of independent directors has played a more significant role in the constraints; the number of independent directors is not useful as we expected; high education level of independent directors can make the size of related transactions small; independent director’s background is not useful on the related transactions; independent directors’age and the number of part-time of independent directors do not have an impact on the size of related transactions.According to the empirical results, we find that the proportion of independent directors and the qualifications of independent directors will restrict the performance of their duties. And this paper proposed some relevant suggestions to improve the system of independent directors.