An Empirical Study On The Relation Between Board Characteristics And Financial Fraud

Specific Independent Auditing Standard pointed out that financial fraud is a behavior on purpose which would lead to false financial statements. National governments and researchers have paid special attention to financial fraud since the date of its birth. It is not only consists in the mature capital market in the West, but also consists in our young capital market. The repeated acts of financial fraud damaged the interests of investors, creditors and stakeholders, more seriously, it directly undermine investors confidence which is an important pillar of the capital market, and affected the healthy development of China's securities market. Senior executive is a special group who can disclose the financial information with their subjective judgment. If the rights of senior executives lack the necessary constraints, that will very easily lead to financial fraud.In this paper, the author researches in-depth on the relation between board characteristics and financial fraud with methods of theoretical analysis, empirical analysis and case study. First of all, the author introduces definitions of board, senior executive and financial fraud, and summarizes research documents on the relation between board characteristics and financial fraud. Secondly, the author does preliminary analysis on the difference of fraud companies and non-fraud companies in board scale, board conference, independent directors, CEO duality and stock-keeping ratio. Thirdly, the author quantifies board characteristics to build Logistic regression model to analyze the relation between board characteristics and financial fraud, and use the case of Kelon Electrical to verify the correctness of the model. Finally, the author tables proposals to govern financial fraud according to the preceding theoretical analysis and empirical research.