Director Network, Governance of Independent Directors and Efficiency of Enterprise Capital Allocation

Abstract

Abstract Based on the social network analysis theory and employing multivariate linear regression, this study empirically examines the effect of network location of independent directors in China’s listed companies on the efficiency of capital allocation of the enterprises, using a research sample of China’s A-share companies listed in Shanghai and Shenzhen Stock Exchanges over the period of 2013–2016. The research shows that the higher the network centrality of independent directors, the more it can improve the inefficient investment of enterprises and enhance the efficiency of capital allocation. Specifically, as the investment inefficiency is divided into under-investment and over-investment, the findings show that the more central the independent directors are in the director network, the better, which not only can suppress the over-investment of enterprises, but also can effectively alleviate the under-investment of enterprises. Based on the further study of nature of the enterprises’ property rights, in comparison with that of state-owned enterprises, the network centrality of independent directors of private-owned enterprises plays a more significant role in improving the efficiency of corporate investment.