Politically connected independent directors and corporate fraud in China. (10th February 2019)

• Record Type: Journal Article
• Authors: Kong, Dongmin; Xiang, Junyi; Zhang, Jian; Lu, Yiyang
• Is Part Of: Accounting and finance. Volume 58:Number 5(2019)
• Page Start: 1347
• Page End: 1383
• Publication Date: 2019-02-10
• Subjects: Corporate fraud -- Politically connected independent directors; Accounting -- Periodicals; Finance -- Periodicals; 657.05
• DOI: 10.1111/acfi.12449
• Languages: English
• ISSNs: 0810-5391

Abstract

Abstract: This study investigates the effect of politically connected independent directors on a firm's likelihood of committing fraud in China. We classify the political backgrounds of independent directors into three categories based on their employment histories: local background, central background, and local and central background. Using corporate fraud data from 2000 to 2014, we find that independent directors with local political backgrounds significantly reduce the likelihood of a firm committing fraud. Further analysis shows that locally connected independent directors are more likely to have both employment experience in regulatory agencies and financial/accounting/law expertise.