Dose The Actual Controller's Over-appointment Of Directors Promote Form Innovation?

From the over-appointment of directors by Shenzhen Metro,the largest shareholder in Vanke's newly elected board of directors in June 2017,to the over-appointment of directors by Baidu,the strategic investor in China Unicom's mixed ownership reform in February 2018,the term "over-appointment of directors"has drawn wide attention from the academic circle.However,the difference is that Vanke's over-appointment of directors by Shenzhen Metro,the largest shareholder,and China Unicom's over-appointment of directors by Baidu,the minority shareholders.For the A-share market in China with a high proportion of minority shareholders,there is a common view that over-appointment of directors by larger shareholders leads to the separation of control rights and cash flow rights,which may induce "negative externality" of control rights.Especially when the larger shareholders are the actual controllers,the super control right formed by the over-appointment of directors may induce the actual controller to take tunneling behaviors that harm the interests of minority shareholders.So is that always the case?Similar to the pyramid structure,family member as chairman of the family firms,and dual-class share structure,the actual controller's over-appointment directors also have two completely opposite effects on corporate governance.The actual controller's over-appointment of directors can effectively avoid the problem of free ride for minority shareholders in dispersed ownership structure,which is conductive to supervising and motivating managers,and provides managers with a longer term by mitigating internal conflicts and improving decision-making efficiency of board.At the same time,the actual controller's over-appointment directors can avoid managerial myopia by mitigating the threat of control market,and promote them to make long-term decisions such as innovation.On the contrary,the actual controller's over-appointment of directors can increase the motivation of managers to grab shareholders interests and the actual controllers'tunneling by increasing the difficulty of control right transfer and reducing the private benefit cost of control right,which will damage the long-term development of the firm.So we can't only focus on the negative externality of the actual controller's over-appointment of directors,and ignore its positive role in corporate governance.For a long time,the A-share market in China has been implementing the share issuing system with one share and one right,and prohibiting firms to use dual-class share structure to issue shares,which leads to many famous domestic innovative firms such as Baidu,Alibaba and Jingdong go to the United Statas for listing.Although the dual-class share structure has always faced with many criticisms that different rights of the same shares will harm the interests of other shareholders,it is undeniable that this special equity structure arrangement has played as active role in maintaining the control rights and the stability of management,which alleviates the managerial myopia and promotes them to increase investment in R&D.Under the environment of dual-class structure being prohibited,can the actual controller's over-appointment of directors be an alternative to the dual-class structure to play an active role in promoting firm innovation?Based on this,we take the 2003-2017 A-share listed firms as a saipple,manually collect the data of the actual controller's over-appointment of directors,and use the patent applications as innovation variables to test the impact of the actual controller's over-appointment of directors on firm innovation.The economic mechanism shows that the actual controller's over-appointment directors can effectively promote firm innovation by providing managers with higher salary incentives and job security for a long time.At the same time,the actual controller's over-appointment directors also can effectively alleviate the takeover threats,avoid managerial myopia,and promote managers to make more long-term decisions that are conducive to the improvement of shareholder's value.In further research,we found that compared with non-family firms,family firms have a high marginal propensity to innovate due to the influence of manager's tenure,intergenerational inheritance and reputation mechanism,etc.,and the actual controller's over-appointment directors a more obvious role in promoting firm innovation.Compared with firms without multiple large shareholders,firms with multiple large shareholders have a weaker impact on innovation because of excessive supervision.And compared with non-high-tech industries,the high-tech industries have strong motivation for innovation due to the pressure of technological competition.Therefore,the actual controller's over-appointment directors have more obvious effects on innovation.This paper provides a new understanding for the academic and industry about the actual controller's over-appointment directors,which has important theoretical and practical significance.