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Features of the Board of Directors and Corporate Performance Study

Author: XuYuan
Tutor: TangMin
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: Features of the Board of Directors Company Performance empirical analysis
CLC: F272
Type: Master's thesis
Year: 2009
Downloads: 139
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Abstract


The relationship between characters of the director board and corporate performance is a hot topic among the area of economics, business theories and capital markets. It has significant theoretical and practical influence in certain areas of scientific research in China. In this study, we selected 2004-2006 annual financial data of manufacturing companies from Shanghai and Shenzhen stock-market as a sample to do the empirical analysis by using the panels (Panel Data) data and mathematics models. The Conclusion reveals that the relationship between the scale of the director board and corporate performance appears as U-shaped style, which means the greater the size of the board of directors, the better the performance of the company within limits. However, the greater scale of the director board far beyond the limit causes the poorer performance on the company. The relationship between the proportion of independent directors and the ratio of return/ equity shows a positive correlation, but the one with earnings per share shows a negative correlation. Both relationships do not pass the significance test. The two together show a negative correlation with the corporate performance, but not significantly. The relationship between the number of annual meeting of the director board and the corporate performance is uncertain. Whether to replace a chairman and the education background of the chairman are negatively correlated with the business performance, but did not pass the significance test.In this study, empirical research shows that most Chinese director boards have not played a role in the company’s operation and in the promotion of business performance. Only when we handled this problem, can we insure the promotion in operating performance. By studying the relationship between the characteristics of the director board and business performance, we try to found whether the structural of director board is imperfect, thus directed suggestions can be made to improve the performance of the respected companies. The purpose of this study is to reflect on the problem of the director board, to make proposals in order to effectively improve the governance of the director board and to promote the company’s performance.This article includes 6 chapters as follows:1. The background and significance of the study; the overview of the abroad and domestic document; the purpose of the topics, research methods, content and the main contribution.2. Analysis the board’s impact on business performance. First of all, make the definition of the board and the director board. Then, discuss how the director board influent business performance.3. Theoretically analysis the Company’s operating performance from the view of the feature of the director board and make assumptions respected. In theory, this chapter analyzes the correlation between the characteristics of the director board and the company operating performance. And make 6 assumptions: First, the relationship between the scale of the director board and corporate performance appears as U-shaped style, which means the greater the size of the board of directors, the better the performance of the company within limits. In the contrary, the greater scale of the director board far beyond the limit causes the poorer performance on the company. Second, the relationship between the proportion of independent directors and the ratio of return/ equity shows a positive correlation, Third, The director board together with the general manager shows a negative correlation with the corporate performance. Forth, the annual number of meetings has a negative correlation with the Board’s performance. Fifth, there is a positive correlation between replacing Chairman and the performance of the company. Sixth, the education background of the chairman was negatively correlated with the business performance.4. The research design on the way how the features of the director board of the Company’s affect the operating performance. This article first choose and definite the study sample, and the relevant variables, select the scale of the director board (BOARD), the proportion of independent directors (INDE), the structure of the leadership (DUAL), the number of the annual meeting of the Director board (LNMEET), Whether chairman of the board to replace (CHAIR), education background of the chairman of the board (EDU) as research variables. Select return on equity (ROE), Earnings Per Share (EPS) as the dependent variable, and select the scale of the company (LNASSET), the concentration of ownership (ROSC), the ratio of assets/liabilities (DEBT), the rate of the main business revenue growth ( DEVE) as the control variables and definite the above-mentioned variables. And then use ordinary least squares regression to analysis the correlation by establishing of the single- variable regression and the multi-variable regression models.5. The descriptive analysis and regression analysis of the way how the features of the director board affect the business efficient. We selected the year 2004-2006’s financial data from the listed company from the Shanghai and Shenzhen stock-market as a sample and set up the single-variable regression models and multi-variable regression model to carry out their inspection. We analysis the correlation between the scale of the board of directors, the proportion of independent directors, the structure of the leadership, the number of the annual meeting of the Board of Directors, the replacement of the chairman of the board, The education background of the chairman of the board of and the company’s performance. And find out the incentives for company business efficient influenced by the characteristics of the director board.6. Conclusions and recommendations. This chapter is the summary of the above study and the respected recommendations. According to the results of the earlier studies, we give some suggestions on how the director board to improving the structure of the board of directors and strengthen governance. This chapter proposes to strengthen the capacity of governance of the director board, and to improve the efficiency of the director board from the standpoints of the scale of the director board, the independent director system, the structure of leadership, the efficiency of the director board meeting. Finally, to summarize this study, the limitations of this paper and the direction of further study are proposed.The study on how the characteristics of the director board affect the company’s performance is a very important research field which has significant influence. However, all the research abroad and domestic have not come to an agreement. The domestic study in this area is even somewhat immature. Many scholars only selected one feature or a few characteristics of the director board to study, what’s worse, the studies on the relationship between director board and corporate performance are imperfect. In addition, most scholars often select the data of a cross-section of the year, or even a cross-section area to study, which is likely to have a major impact on the conclusion. Therefore, this paper’s main contribution is listed as follows:1. The cooperation between the theoretical analysis and the empirical analysis. In the modern study of economics, empirical analysis has become the mainstream. This article dose not only to descript the structure of the director board of the listed companies which may have impact on the operating results ,but also make the empirical analysis of the relationship between the structure of the director board of listed companies and their business efficiency by analysis more detailed data. Thus, the general conclusions are reached.2. According to the results of the published research domestic and abroad, we find that there are few comprehensive, in-depth and systematic studies of the relationship between the characteristics of the director board and the company’s operating performance. The imperfect governance of director board is said to be a direct impact on the company’s operating performance. This article is based on it, and makes a comprehensive, in-depth, systematic study on the relationship between the company’s director board and corporate performance.3. We overcome the study’s one-sidedness of the traditional research which typically selects one of the characteristics of the director board or some of the characteristics of the board of directors. A more comprehensive and systematic study of correlation between the characteristics of the director board and the company’s operating performance is made to insure a more trusted conclusion.4. Explain the results of the empirical analysis of the study; propose the reality of countermeasures to improve governance of the Director board and the business efficiency.As the limited time, conditions as well as my ability to write this paper, there is still much to be desired in this paper, especially in the empirical research. And this is also the right direction for further research. In this paper, the deficiencies are as follows:(1) The limitations of the samples. As the heavy data collection work, we only consider the 2004-2006 China’s Shanghai and Shenzhen stock-market listed manufacturing companies in this article instead of all the listed companies. As a result, this article does not do further research on other listed companies. (2) On September 5, 2005, "The management of share structure reform among listed companies" was launched, which marked the commencement of the reform. Share structure reform among listed companies is so far one of the most important event in China’s stock market, and play a very positive role to standard the China’s market development. Share reform improves the effectiveness of the stock market, so that the stock market resumed its evaluation function of the director board and the management. In this article, we selected 04-06 sample data, which is in the process of share reform, so that the director board will be affected in certain limit. Due to objective factors, the split share structure reform cannot be considered, thus the conclusion will be affected.(3) Better the system of director board governance. Due to my lack of the management experience of director board of listed companies, together with the complexity to improve the governance of the director board, the recommendations made by this study is mainly directed at the manufacturing company listed on the test results from China’s Shanghai and Shenzhen stock markets in 2004 to 2006. There may be some practical results should be further examined.

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