A Study Of Board Independence Characteristics On Overinvestment

Investment is an issue that no company can avoid.The judgment of investment direction,the selection of projects and the size of investment are all closely related to the development of the company.Therefore,an in-depth discussion of the investment activities of enterprises is not only conducive to promoting the reasonable flow of various factors in society,but also to promoting the reasonable distribution of the market.And due to the existence of information asymmetry and agency problems,corporate underinvestment and overinvestment behaviors are difficult to avoid.Some studies examine the topic from the perspective of free cash flow,such as the level of management compensation and the extent of dividend payout.And some studies focus on the impact of corporate governance and government intervention on inefficient investment.The core of this part lies in the supervision of management.One of the responsibilities of the board of directors,as the core of corporate governance,is to monitor management.The board uses information from financial reports to evaluate management’s performance or to investigate abnormal signals from financial reports.Therefore,financial reporting information is an important basis for the exercise of the board’s oversight responsibilities.The more robust the financial reporting information,the more effective the board’s oversight will be and the more it will discourage overinvestment in the company.In turn,the effectiveness of the board’s oversight is influenced by its independence.Therefore,are there certain board characteristics that affect the independence of the board and the robustness of the financial reporting information,which in turn affect the overinvestment through the supervision of the management?This paper selects a sample of listed companies in Shanghai and Shenzhen Ashares from 2008-2019 and constructs board independence indicators(the proportion of independent directors and the two positions of CEO and chairman combined at one time),accounting robustness and overinvestment variables to empirically test the impact of board independence characteristics on overinvestment and its mechanisms.The main findings show that:(1)the higher the proportion of independent directors,the higher the disincentive to overinvestment,and accounting robustness plays a mediating role.(2)The higher the degree of CEO-Chairman duality,the more overinvestment is exacerbated,and there is no significant correlation between CEO duality and overinvestment in the sample with high accounting soundness.In contrast,in the sample with lower levels of accounting robustness,the CEO’s two-position degree significantly exacerbates the overinvestment behavior of firms.This paper also re-regresses the model of accounting robustness and overinvestment to obtain new indicators of accounting robustness and overinvestment,and conducts robustness analysis.This paper investigates the impact of board independence on corporate overinvestment from the perspective of board independence,which both deepens the understanding of board independence and adds to the research related to corporate overinvestment.This paper proposes two different mechanisms of accounting robustness influence between board independence characteristics and corporate overinvestment,which enriches the research related to accounting robustness and opens up the path of board independence influence on overinvestment.This paper helps governments,enterprises and investors to deepen their understanding of board of directors and accounting soundness,and facilitates the designation of board-related policies and the regulation of overinvestment by corporate management.