The Role of Independent Directors in Corporate Governance and Their Impact on Over-Investment

Abstract

This article systematically reviews the role and challenges of independent directors in curbing overinvestment in enterprises. Based on the agency theory framework, this article analyzes the theoretical path for independent directors to improve investment efficiency through supervision, consultation, and signal transmission mechanisms. Research has found that although independent directors theoretically have governance effectiveness, their actual effectiveness is significantly constrained by practical difficulties such as lack of independence, information barriers, and insufficient incentives. This article further reveals the situational dependence of independent director effectiveness and points out that its effectiveness is deeply influenced by institutional environment and equity structure. Finally, The research findings of this paper show that this article proposes policy recommendations for shifting from formal compliance to substantive effectiveness, including optimizing the selection mechanism and improving the incentive compatibility system. This study provides important insights into the effectiveness of corporate governance mechanisms and has reference value for governance practices in emerging markets.