Study on the relationship between the independent board directors' allowance-incentives and the illegal activities of listed companies in China

Independent board directors have a compelling obligation for listed companies' illegal activities, and their performance has a direct effect on the listed companies' illegal activities. The incentives to independent directors are the main influencing factors in their responsibility fulfillment. From the perspective of independent directors, this paper studies the correlation between the allowance-incentives of independent directors and listed companies' illegal activities. Based on 61 listed companies with illegal activities in 2006, COX regression model has been adopted for analysis and shows that the allowance of independent directors has a highly positive correlation with listed companies' illegal activities. In other words, the higher allowance of the independent directors is paid, the more incidences of listed companies' illegal activities occur. This result severely challenges the current mechanism of unitary allowance incentives in China, since higher allowance fails to motivate the performance of the independent directors in preventing the legal violation of listed companies.