Essay on The Tiered Board Of Directors

Essay on The Tiered Board Of Directors

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As discussed above, the two-tiered board of directors is used in the corporate governance mechanisms in Germany and Japan, which is praised as effective for the shareholders and also for relevant stakeholders. The Anglo-American model of board structure, including institutional and market-based holders, is intended to bring in the self-interested controllers aiming at making the decisions that maximize the value of the owners (Dennis and McConnell 2003). The essentially one-tier board in Chinese listed firms has a so-called supervisory board. Each of the corporate governance models reflects a structure in which to manage the agency problems arising when managers or relevant stakeholders are delegated rights of control. Each implies the ideal that shareholders’ interests, especially minority shareholders’ interests, together with those of other relevant stakeholders are better aligned in a suitable corporate governance mechanism.

As many scholars stated, like Jensen and Meckling (1976), Fama and Jensen (1983), agency problem is an essential aspect of the company contractual theory. Berle and Means (1932) the corporatization reforms result in the transformation of control rights from individual to professional managers. The separation of ownership and control brings about the root of the agency problems, conflicts of interests among different parties. Additionally according to Shleifer and Vishny (1997), it can be more generally stated that the essence of agency problem comes from the separation of management and finance. The funds raised from investors can be used to invest in further production or cash out of the firms` holdings. Sometimes due to the lack or insufficiency of owners` fund and resources, managers need additional f...

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...ership and firm values is significant. Although the relevant study in China is relatively less and mostly fail to reach a consensus, some evidences found support the findings of above. For example, Kato and Long (2005), Buck, Liu and Skovoroda (2008) find out that there is a closed relationship between managerial ownership and shareholder value and sales growth in China. Even in Chinese companies with a high proportion of state shares, the mechanism of managerial ownership is now widely and continuously being promoted as an incentive and monitoring mechanisms in an attempt to reduce the agency cost and negative principle–agent impact. Given to the consideration of the above discuss and the early practice of managerial ownership mechanism in China, the first hypothesis is put forward as:
H1: There is a positive relationship between Managerial Ownership and Firm Value

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