Literature Review on the Independence and Effectiveness of Independent Directors

Tingyou Deng

doi:10.4236/ojbm.2019.72072

Abstract

This paper summarizes the literature on the independence and effectiveness of independent directors, finds indicators of independence and effectiveness, and finds the connection between the two.

Highlights

This paper summarizes the literature on the independence and effectiveness of independent directors, finds indicators of independence and effectiveness, and finds the connection between the two
Due to the fact that most of the independent directors are employed by the management and the information asymmetry between the independent directors and the management, many scholars believe that the voting rights of the independent directors are only rubber stamps, and generally will not be at the board meeting
One outstanding performance is that the relationship between independent directors and company value has not been determined so far: Rosenstein & Wyatt (1990), Wang Yuetang found that independent directors help to enhance the company’s value, but Klein (1998) [20] found that the two are irrelevant

Summary

Introduction

The full implementation of the independent director system is an important http://creativecommons.org/licenses/by/4.0/ measure in the process of reforming the governance mechanism of listed com-. It gives us a research opportunity to examine whether the independence of the board affects the company’s performance. The independent director system has always been regarded as one of the important mechanisms to resolve the agency problem between shareholders and managers (Fama and Jensen, 1983 [1]). Management’s actions raise open questions that independent directors cannot really play a supervisory role. Independence is the soul of an independent director, affecting the role of independent directors. Through the exploration of domestic and foreign literatures, this paper finds the indicators for measuring independence—the dissent opinions of independent directors; and finds the indicators to measure effectiveness—capital occupation and earnings quality

The Rise of the Independent Director System

Independence of Independent Directors

Effectiveness of Independent Directors

Conclusions