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Analysis of the initiative to set up an independent director of listed companies in China's motivation

Author: WuLiDong From: www.yourpaper.net Posted: 2009-06-12 20:56:40 Read:
[Abstract] the mandatory institutional change process of the independent director system in China, part of the listed companies in the initiative to set up an independent director of "voluntary behavior. Theoretical analysis for the motives that lead to voluntary behavior, and take the initiative to set up and non-active setting up of the 50 listed companies as samples empirical test results show that the initiative to set up an independent director oversight motives exist in China's listed companies in Shanghai and Shenzhen " and consultant motives. The study provides empirical support for the aspects of China's listed companies from mandatory compliance to step into the active compliance own governance phases and how to reform the system of independent directors.
[Keywords] listed company; independent directors; take the initiative to set up; motivation

A mandatory independent director system changes

The late 1980s, China began to conduct a comprehensive joint-stock reform of state-owned enterprises and public financing. Highly concentrated institutional factors have led to the shareholding structure of listed companies, state-owned shares "due to the dominance of the agency problem between large shareholders and minority shareholders" tunnel behavior "as the main performance. In order to solve this serious problem not only harms the value of listed companies, but also endanger the capital market credit basis, China began to import independent director system from top to bottom, began a mandatory change process.
China's first independent director from the overseas listed as the first batch of H-share companies listed on the Hong Kong securities market - Tsingtao Brewery became the first listed companies to have independent directors. With the increase in overseas listed companies, in order to strengthen the management of the overseas listed company, in March 1999, the State Economic and Trade Commission and the China Securities Regulatory Commission jointly issued the "opinions" of overseas listed companies to further promote the standardized operation and deepening reform, require overseas listed companies to gradually establish and perfect the system of independent directors.
Domestic listed companies appear as a system of independent directors in December 1997, the China Securities Regulatory Commission issued the "listed companies Prospectus Directive", formally establishing an independent director as an optional system. The flag of the independent director system has entered a substantive stage Securities Regulatory Commission issued a "guidance" on the establishment of an independent director system in listed companies (hereinafter referred to as "guidance") in August 2001. Calls for domestic listed companies to amend the company's articles of association, to appoint appropriate personnel as independent directors, including at least one accounting professionals; include at least two independent directors on June 30, 2002, the members of the board of directors; 30 June 2003 Recently, members of the board of directors of listed companies, including at least 1/3 of the independent directors. In November 2001, Nankai University Center for Corporate Governance launched the "Principles of Corporate Governance (draft)", explicitly given a specific operation program for the establishment of an independent director system in China's listed companies. January 7, 2002, on the basis of the draft, the China Securities Regulatory Commission and the State Economic and Trade Commission jointly issued the "Corporate Governance Guidelines, which set forth requirements for the directors and the board of directors, proposed directors to fulfill integrity, diligence obligations, The provisions on the composition of the board of directors, independent director system, special committees under the Board, the Board of Directors of the Rules of Procedure. 2005 the fourth meeting of the Standing Committee of the Tenth National People's Congress examined and adopted the new Companies Act, which explicitly included in the system of independent directors, the members of the board of directors of listed companies should be more than 1/3 of the independent directors; provisions at the same time, independent In addition to the exercise prescribed terms of reference of Directors, the directors can also exercise the following powers: review and publish an independent opinion on the company associated with the transaction, the hiring or dismissal of accounting firms and other significant matters, more than 1/2 of these matters by the independent directors agreed to be submitted to the Board for discussion. The promulgation of this law, the system of independent directors and independent directors of the terms of reference of the "legal basis", and its legislative level is no longer limited to the rules and regulations issued by the State Council regulations and lower legal status. This is undoubtedly a booster the development of the independent director system in China, is a further improvement of the independent director system in China.
Characteristics: First, from the view of the course of development of the independent director system in China, has a mandatory change to the government and other departments as the main body, such as the National People's Congress, the Securities and Futures Commission, the State Economic and Trade Commission, during a number of academic institutions, exchanges played an important role. The second is from top to bottom. The radical nature. From 1997 to 2005, only the rules and regulations published by the SFC had more than 100, the introduction of a series of rules and regulations, to define the rights, obligations and responsibilities of independent directors, a short time as a listed company, independent The directors of the formation and development of the system build a basic legal framework. Driven top-down by administrative forces, increasing the overall size of the independent directors of listed companies increased from 35 in 1998 to 2005 to 4482 (see Figure 1).

Independent director system for listed companies in China, is formed by an external institutional arrangements, not the shareholders, management and other stakeholders of the corporate governance repeated game. Suited to the institutional environment as an "exotic", due to the emergence of the phenomenon of low efficiency, which is the loss in value caused by the mandatory institutional change.

1. Take the initiative to set up the behavior of independent directors. We found that in 2001, before the promulgation of the "guidance". Listed Corporations take the initiative to set up an independent director signs (see Table 1), such as the two listed companies to set up an independent director in 1998 and the end of 2000, a total of 42 listed companies in Shanghai and Shenzhen in the establishment of the independent directors, the pressure of the establishment of the independent directors not mandatory, fully active behavior. In 2001, after the release of the "guidance", part of the company set up the proportion of independent directors to be higher than the mandatory percentage of SFC (see Table 2), and take the initiative to set up the behavior of some representatives of the companies above, until 2004, a total of 9 on the company, so before and after a total of 51 listed companies in the behavior of the initiative to set up an independent director.

Corporate governance is internalized as the shares of the company's evolution and institutional arrangements, management incentive contract with the internal organization designed to solve "internal control problems, the protection of shareholders' equity. Large shareholders and minority shareholders in recent years in China's listed companies showed the agency problem is difficult to rely on internal governance mechanisms to be effectively addressed, and that the internal system failure. Therefore, the government expect to solve the problems of internal governance failures through the design of the independent director system. But the major shareholders of listed companies is not to oversee the independent directors to create favorable conditions to achieve a minimum mandatory standards to represent their organization exists "reasonable", which led to the independent director system in China "inherent . " But the initiative of establishing the existence of the phenomenon of independent directors that external independent director system in China's listed companies within the tendency is what factors led to this change? Internal mechanism to parse these factors may explore China based on the logical starting point for the internal system of independent directors.

2. The initiative to establish the motives of the independent directors. The inherent system evolved based on experience and control the behavior of the subject specific the main reason why is that they found the benefits to save the internal system. Interests driving the specific subjects of the initiative to set up an independent director of the motivation. Specific subject related to the independent directors in the interests of the listed company stakeholders collection, including controlling shareholders, other large shareholders as well as management of the Company.
Starting from the point of view of controlling shareholders, as La Pona, Lopez-de-Silanes, ShleiferL, Claessens, Djankov and Langt Fac-eio and Lang pointed out different combinations of private earnings and cash flow gains control over the revenue function of the controlling shareholders to decide its behavior when the control rights and cash flow rights deviation occurs, the higher the degree of deviation, the more incentive controlling shareholders to pursue private benefits of control through the "tunnel effect", the decline in the value of the company's cost but by other small and medium-sized shareholders commitment. Consistent control rights and cash flow rights, controlling shareholders of listed companies of any damage. The behavior of the value of private benefits are difficult to make up for the loss of cash flow income such controlling shareholder is committed to enhance the value of the company and other shareholders' interests compatible. Improve corporate governance, strengthen the supervision of the managers to become profitable. For supervision motives controlling shareholders will take the initiative to set up an independent director, independent directors institutional arrangements as a solution to agency problems managers can control shareholders accept. Starting from the point of view of the other large shareholders, often out of the motive of "checks and balances" to use their acquired voting rights initiative called for the establishment of an independent director. Pursuit of its private benefits controlling shareholders too, in order to prevent the collusion of the controlling shareholders and managers and other large shareholders will unite the checks and balances of independent directors to the behavior of the controlling shareholders play. The motive of "checks and balances" the ability to achieve the key is whether the other large shareholders have enough of the right to vote to determine independent director candidates.
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