Financial Risk And Independent Director Opinion

The independent director refers to someone work as a director in the company, however they do not have any economic and social influence with the shareholders or managers of listed companies, They are able to conduct an independent judgment, and they will not participate in the specific operational management, they are just monitor the behavior of Major shareholder and manager and put forward advice to the company's strategic decision. In 2001, the China securities regulatory commission issued "the guidance opinion of establishing the independent director system in listed company". so far, The independent director mechanism has been established for 15 years in China, it is doubtful whether independent directors play a monitoring role in corporate governance and the "western" governance mechanism is suitable for China's conditions.In order to promote the development of the market economy and improve the governance structure of listed companies, We introducing the independent director system in our country gradually. however, unlike the European and American countries, our equity of listed Corporate is relatively concentrated, the controlling shareholder has the right to make the company's business decisions, so the agency problem between shareholders and managers is outstanding. In such circumstances, China's independent director is aim at the balance of interests between manager and large and small shareholders. however our independent directors are elected by the boare or shareholders who hold more than 1% shares. Because of ownership concentration, major shareholders tend to choose this kind of the independent directors who Keep quiet when proceed to the vote and avoid independent directors who may express disagreement.In 2001, the China securities regulatory commission issued "the guidance opinion of establish the independent director system in listed company", it requires public company established the independent director system, at the same time, it is also qualification requirement such as the number of independent directors and independent directors' professional background and so on. However, most of the listed companies in China are controlled by state-owned enterprises. in this case, the large shareholders have the tendency to access their own interests at the expense of the damage the interests of small shareholders. therefore, It is not only for corporate governance to solve agent problems between shareholders and managers, but also to deal with the Conflict of interest problems between controlling shareholders and small shareholders.Introducing the independent director system in our country is to monitor the behavior of big shareholders and management supervision and protect the interests of minority shareholders. But in order to maintain their independent position of director, and get the corresponding salary, benefits, some independent directors will willin to keep good relationship with the manager and avoid to issue negative opinion to irritate managers, so the upervision effectiveness of independent director s has been widely questioned.In order to improve the corporate governance structure in China, the China securities regulatory commission requires the independent directors of listed companies published their opinion to regulators and investors, which help investors and regulators to understand the operation condition of listed companies and to prevent the controlling shareholders infringe on the interests of small shareholders.First, This paper puts forward the research background and the significance, then by reviewing of the literature of domestic and foreign scholars on the independent director system, and combining with the theoretical foundation of the independent director system, we put forward some assumptions. By using independent opinions on major events of the listed company, we select some listed corporates whose independent directors once issue negative opinion as samples, We use the negative opinion as a proxy of monitoring effectiveness of the independent directorscai, made a empirical analysis that how the listed company financial risk influence monitoring effectiveness of the independent director, and propose some suggestions on this basis.This article selects the listed companies whoset independent directors once issue negative opinion in 2005 to 2014, the financial risk of listed companies as explanatory variables, combining with the personal characteristics of independent director's (e.g., the professional background of independent directors, education background, age, etc) and the characteristics of listed companies (such as board size, independent directors ration etc.), by establishing a Logit model, Analysis the impact of financial risk on the negative opinions of the independent directors. then we further analysis whether the independent directors issued aggressive negative opinion when financial risk increases. the results of the empirical analysis show that for the sake of human capital and the reputation, the independent directors of the listed company will willing to issue aggressive negative opinion when facing greater risk. combination with personal characteristics of independent directors and board structure of the company, we found with independent directors whose occupation is economists,accountant, lawyer or government official tend to issue negative opinion. At the company level, the empirical results shows that the independent directors in larger board size company tend to published a dissent.The contribution of this paper is mainly in the following two points:first, at present the research is most focus on increasing the number of independent directors or increase its proportion in the board of directors. But there have not come to an agreement whether the independent directors of listed companies in our country is play a role of supervision. Based on the data that independent director issue opinions on major events of the listed company, combined with the personal characteristics of independent director and characteristics of listed companies, we made a Empirical analysis of the influence of financial risk on the opinion of independent directors. There are few domestic scholars investigate the monitoring behavior of independent director, so this article has enriched the research of this part. Second, according to data that the independent directors of listed companies issue opinion, we divide the dissent of independent directors into weak negative ipinion and srong negative opinion, and further analysis whether the intensity of the dissent of the independent directors of will change when the financial risk increases.