The Role of Supervisory Board Heterogeneity on Corporate Irregularity: New Insights and Management Opportunities

Abstract

By structural equation modeling (SEM), this paper analyzes and explores the four Potential Characteristics of the supervisory board. They are: Individual Heterogeneity of the Supervisory Member (Internal Heterogeneity), Organization Size of the Supervisory Board (Organization Size), Structural Characteristics of the Supervisory Board (Structural Characteristics) and Identity Background of the Supervisory Board (Identity Background). Then, it constructs a path analysis and theoretical model of the influence of supervisory board heterogeneity on corporate irregularities, and verifies each influencing factor and observation index. The results show that individual factor Professional heterogeneity is the most effective indicator of Internal Heterogeneity, but such Internal Heterogeneity has a very limited effect on the occurrence of corporate irregularities. Organization Size has a significant impact on corporate misbehavior, and Number of people is an important factor in constructing Organization Size, yet the frequency of staff Turnover is not significant. Although the Average Age, Party Member Ratio, and Female Ratio can well conceptualize the Structural Characteristics, their effects on supervision performance are not obvious. Identity Background, including factors such as Average Education, Government/University Experience, or External Supervisors, does not improve supervisory performance and reduce the occurrence of irregularities. The above findings provide a foundation for further analysis and integration of multiple heterogeneous factors, as well as further study of the “combined effectiveness” of the supervisory board, and deeper investigation of the actual impact of the supervisory board on irregularities.