Politically Connected Independent Directors and Corporate Fraud in China

37 Pages Posted: 7 Mar 2019

See all articles by Dongmin Kong

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology; School of Finance, Zhongnan University of Economics and Law

Junyi Xiang

Huazhong University of Science and Technology (Formerly Tongi Medical University)

Jian Zhang

Shanghai International Studies University

Yiyang Lu

Vanderbilt University

Date Written: March 2019

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.

Keywords: Corporate fraud, Politically connected independent directors

Suggested Citation

Kong, Dongmin and Xiang, Junyi and Zhang, Jian and Lu, Yiyang, Politically Connected Independent Directors and Corporate Fraud in China (March 2019). Accounting & Finance, Vol. 58, Issue 5, pp. 1347-1383, 2019, Available at SSRN: https://ssrn.com/abstract=3347980 or http://dx.doi.org/10.1111/acfi.12449

Dongmin Kong (Contact Author)

Department of Finance, Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China

School of Finance, Zhongnan University of Economics and Law ( email )

Wuhan, Hubei 430073
China

Junyi Xiang

Huazhong University of Science and Technology (Formerly Tongi Medical University) ( email )

1037 Luoyu Rd
Wuhan, Hubei 430074
China

Jian Zhang

Shanghai International Studies University ( email )

550 Dalian Road (West)
Shanghai, Shanghai 200083
China

Yiyang Lu

Vanderbilt University

2301 Vanderbilt Place
Nashville, TN 37240
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1
Abstract Views
813
PlumX Metrics