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Dialectical analysis of the concept of equilibrium and non-equilibrium view of the structure of the Board

Author: XieXiangBing From: www.yourpaper.net Posted: 2009-05-21 18:48:33 Read:
[Abstract] balanced view of the structure of the Board that there is an optimal board structure, suitable for all companies under which the company will achieve the best operating performance. Rather than a balanced view of the structure of the Board of Directors of the Company is made by the company of its operating environment or contractual conditions facing a trade-off to be set based on the principle of cost-effectiveness. These two concepts are discussed in detail, and its relationship analysis a step further, and dialectical analysis of the existence of the practice optimal board structure.
[Key words] the structural balance of the Board of Directors concept of non-equilibrium concept

Currently, the board structure at home and abroad are mostly concentrated in the Board what to do, how the board affect the company's management decision-making, topics are balanced view of the structure of the Board. If the operating efficiency of the structure of the Board of Trustees of the study does not consider the determinants of board structure, they may ignore one of the most fundamental economic factors, these two issues are always interrelated because the Board did what and how they reached the the. As George J. Stigler and Claire Friedland (1983) said, severely criticized the current corporate governance, it is necessary to conduct a comprehensive understanding of how market forces may lead to this situation. In recent years, more and more research on the determinants of board structure, thus gradually formed the main ideas of the concept of non-equilibrium of board structure, and provides a lot of empirical evidence.

A balanced view of the structure of the Board

As early as in the 1970s, Jeffrey Pfeffer (1972) that the structure of the Board is "rational" to handle the problem of interdependence with external organizations and environmental uncertainty as a tool in the control of industry influence, he found, the more deviation from the "optimal" board structure, the more there will be significantly less profitable. In other words, the structure of the Board is used as a processing environment tools, the company's profit will be reduced when the company can not be the proper use of this tool. Core et al (1999) The results show that when the CEO serves as chairman of the board of the company, the larger the board size and the greater the proportion of independent directors of the board of directors and external, the higher the CEO's compensation; external independent directors older and services more than three other directors of the company, the CEO's compensation will be higher.
Such studies may be endogenous: If the Board characterized as an endogenous variable, and may not exist a significant relationship between the performance of the company and the size of the board or formed. Boone et al (2006) results show that board size and composition may be endogenously determined by the choices made in the company's value-maximizing behavior. In fact, most of the study of corporate governance and firm performance relationship implies the assumption that there is a causal relationship between a single corporate governance mechanism and firm performance. When this relationship in a non-equilibrium state, the company's performance is relatively poor, can make the company's performance improved by changing the content of the governance mechanisms. For example, many of the study of the structure of the Board, are implicit in the assumption that there is an optimal external proportion of independent directors, and the purpose of the study is to find the optimal structure of the Board. Further, even if the proportion of independent directors, board size and board leadership structure does have its optimal level, the optimal level may have to be decided by many complex factors. These factors in different environments, even if the composition of the Board and the same scale, it corresponds to the performance of the company may also vary. In fact, the study of the relationship between corporate governance structure and financial results of the Company have not been able to come to a satisfactory conclusion. Both theoretical model and the empirical results are difficult to prove the existence of a corporate governance model to adapt to the different companies in different countries, different institutional background. As people always make such a question: "someone else's shoes can fit themselves in the foot?"

Second, the structure of the Board of non-equilibrium concept

View of the structural balance of the Board, the researchers held unbalanced view of the structure of the Board is not to explore the optimal structure of the board of directors, but that observed in the corporate governance structure represents the company's best contractual arrangements, such contractual arrangements endogenously determined by the contractual environment facing the company. From the the agent theory point of view, the structure of the Board as a governance mechanism to solve agency problems, the cost-effectiveness of each company will be from the most basic principles, and to maximize the value of the company, and thus will choose a suitable for the optimal board structure. This structure determines the company applied to solve the company's proxy conflict alternative governance mechanisms, the observed board structure can produce optimal CEO contract and performance of the company.
Through a simple model, Art Durnev and E. Han Kim (2005) describes a controlling shareholder in the face of the private costs of the transfer of the company's resources, how to choose the degree of optimization of the transfer of resources. Of data for 27 countries found that: there are better investment opportunities, higher ownership concentration, there is a greater demand for external financing company has a better corporate governance, and its market value is higher. Bushman, R., Qi Chen, Ellen Engel and A. Smith (2004) found that, when the company's earnings timeliness of the lower and the higher the complexity of the company, the more companies will have a higher proportion of external independent directors, including more multi reputation external independent directors as well as more specialized external independent directors in order to achieve a more efficient supervision of the Board. In the study of the sample of listed companies in China, Chu Yiyun Xiexiang Bing (2008) study found that the company operating the complexity of the shareholding structure with the company board of directors structure of the formation of significant related, which means that the listed companies is based on the operating environment and internal governance mechanisms to select suitable for the development of the company's board structure. Thus, for public companies, may not be optimal for all company board structure.

Third, from the perspective of dialectical analysis of the concept of equilibrium and non-equilibrium concept of the structure of the Board

Board structure concept of equilibrium and non-equilibrium concept of the main differences is that the existence of optimal one size fits all and make the most efficient corporate governance structure of the Board. However, for what kind of set is the optimal board structure, which in itself may be present controversial.
1, the optimal structure of the board of theoretical analysis and empirical evidence of the differences
(1) the optimal size of the board. For the optimal size of the board, from different angles may come to different conclusions. Some scholars believe that the Big Board will result in higher costs of coordination and free-riding behavior, coordination costs will be improved with the expansion of the scale of the Board, and thus a small board of directors operates more efficiently. Mak and Roush (2000) found that board size is negatively correlated with the company's growth opportunities. The big advantages of the board of directors that the Board can have a lot of impact on the collective ability of the various elements of the value of the company, including product market, technology, system regulation, mergers and acquisitions, and this information is useful both for the recommendations of the directors function or supervisory function. In fact, the different size of the board may be a trade-off made by the company, and this trade-off is likely between different companies and industries will be different.
(2) independent directors hired the pros and cons. At present, the Board of Directors of the Company is composed of a trend to employ more external independent directors, the Enron and WorldCom scandals prompted a series of institutional and regulatory policy reform, including the 2002 Sarbanes-Oxley Act requires the company's audit committee should just hire an outside independent Director. The internal directors may scruples to the reign of CEO impact on their career development within the company, and thus relatively weak supervision of the CEO. External independent directors is much less susceptible to the impact of the results of the CEO evaluation and decision, they would be more just, and thus able to make a more objective evaluation of management decisions, independent advice (solution).
Research on corporate governance also appeared opposite conclusion, that is, the less independent directors, the better the performance of the company. In practice, a large number of judicial judgment, the U.S. Sarbanes-Oxley Act in 2002 and the subsequent implementation of the securities regulations have revealed such a concept: the independence of the directors of a good corporate governance is necessary. Despite most of the regulators, academics and practitioners that the independence of directors is useful and important, but what factors determine the formation of the independence of the board and there are different views on how to make effective corporate governance reform objectives are achieved.
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