Monitoring of earnings management by independent directors and the impact of regulation: evidence from the People's Republic of China
by Liona Lai
International Journal of Accounting, Auditing and Performance Evaluation (IJAAPE), Vol. 7, No. 1/2, 2011

Abstract: Alarmed by escalating volatility in international financial markets and the uncovering of numerous accounting scandals, national regulators worldwide responded by introducing new regulations on corporate governance. To shed light on the debate over the merit of such regulations, this study examines the effectiveness of independent directors in constraining earnings management behaviour in the PRC around the time when the Chinese regulators issued a mandate requiring minimum representation of independent directors in listed firms. The results show that while board independence significantly reduces earnings management when adoption of independent directors is voluntary, a higher degree of board independence is not associated with lower earnings management when adoption of independent directors is made mandatory. This suggests that board independence could be effective in monitoring earnings management even in an institutional environment like that of the PRC, but regulation could distort conditions in the market of independent directors, which renders such governance mechanism ineffective.

Online publication date: Fri, 13-Mar-2015

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Accounting, Auditing and Performance Evaluation (IJAAPE):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com