| In the 60s and 70s of the 20th century, the companies'equity shares have gone further public, with the economy booming. At the same time in the world, an increasing number of studies revealed the fact that the functions of Board of Directors are weakening. While the equity has been further public, there are conflicts between the internal control of Board of Directors and the development of modern enterprise. In this situation, Western Countries introduced the system of independent directors to corporate governance. On August 21, 2001, China Securities Regulatory Commission set"Guidance on Establishing Independent Directors System in Listed Companies", which marks the beginning of Independent Directors System in listed companies in China. Presently, the equity is over centralized and public shareholders are too weak, therefore, the controlling shareholders actually control the Board of Directors, which lacks efficiency and effectiveness. Also, the Board of Supervision couldn't play an active role either. The introduction of the system of Independent Directors of listed companies is mainly to deal with the internal control.The case of"Lu Jiahao, independent director of Zheng Baiwen"has initiated the general public's considering of a series of problem of independent director system in China: Whether"honorable"external independent director, who does not participate the daily operation of company, or even does not read financial reports, should be responsible for the quality of accounting information disclosed by listed company? Is the independent director willing to be just kind of decoration for listed company? Or act only as a scarecrow? Since independent director system established in the listed companies of our country, has there been any relationship between Independent Director System and accounting information quality of listed companies? Particularly in recent years, the cases of financial reporting frauds in listed companies of our country occurred one after another. Insufficient accounting transparency of listed companies is a severe issue puzzling investors. Then, is the Independent Director System effective for suppression to the occurrence of financial reporting fraud of listed companies?Based on the consideration of the problems above, this paper focuses on the empirical study on the relationship between Independent Director System and financial reporting frauds of listed companies.Firstly, this paper has carried out a brief review of the establishment and development of the Independent Director System in our country. Then the author describes the significance of the study, train of thought and frames, and outstanding innovations of this paper.Secondly, the paper systematically introduced and commented on the domestic and foreign literature about the relationship between Independent Director System characteristics and accounting transparency. After sorting out this research, the author finds out the following focuses: proportion, annual compensation, audit committee composed by independent director, number of times when independent directors participated in the Board of Directors'meeting, term of independent director, and stock owned by independent director, and so on. At the same time, it elaborates on the independent director system and the financial report fraud theoretical basis respectively, after working out the common ground about the research at home and abroad, which establishes foundations for further study of this paper.Thirdly, based on elaboration of domestic and foreign relevant literature about the relationship between independent director system and financial reporting fraud, this article defines independent director system as well as financial report fraud, and analyzes the establishment and development of independent director as well as its function, and mainly elaborates on the harm of financial report frauds. Moreover, the article creatively proposed theories on the correlation between independent director system and the financial report fraud, such as human's finiteness, system economics, principal-agent's information asymmetry, game theory and so on. Finally, for the later empirical research needs, the author discusses several important features of independent directors from the perspective of financial reporting fraud, which works as foundation for later hypothesis.Fourthly, in this part, the article explains the design and the method choice about empirical study of the relationship between Independent Director and financial report fraud. According to the research need, the Logistic logarithm mode is selected as the basic model of research. On this foundation, the paper elaborates the sample selection and its origin, the definition of variable, and finally proposes7 pending suppositions for examination.Fifthly, this paper uses positive methodology to research the relationship between the characteristic of independent director system and financial reporting fraud. The author selects the samples of 88 listed companies (including 44 fraud companies and 44 non-fraud companies) which released their financial reports and was punished by China Securities Regulatory Commission for their financial fraud. From seven aspects, namely, proportion of independent director, age of independent director, annual compensation of independent director, education level of independent director, tenure in office of independent director, independent director participated personally the board of directors'meeting, specialized opinions by independent directors, the author examined the relationship between independent director system and financial reporting fraud. Through empirical study, we tested which characteristics of the independent system have significant effect on financial reporting fraud, as well as which do not. The results of empirical study show that (1) proportion of independent director is negatively related to financial reporting fraud; (2) age of independent director is not negatively effective on the control over financial reporting fraud;(3) annual compensation of independent director is not effective on the control over the financial reporting fraud. It means that only through increasing compensation for independent director is far from effective on improving the accounting information quality of the listed companies; (4) education level of independent director is negatively related to financial reporting fraud; (5)tenure in office of independent director is negatively related to financial reporting fraud; (6) independent director participating personally the board of directors conference of is negatively related to financial reporting fraud; (7) independent director stating specialized opinions is weakly negatively related to financial reporting fraud.In the light of the above research results, this paper suggests that: we should positively learn and absorb the experience of independent director system construction which western countries has accumulated for a long time, considering the condition of our country, so as to improve the currently immature independent director system in corporate governance structure for our country in various ways, ensuring the function of independent director system in enhancing accounting information quality of listed companies. For these reasons, this paper proposes to increase the proportion of independent director, bring independent director's supervision function into play and reasonably decrease the age of independent director, so that more and more young and successful experts can join in the profession of independent director. The motivation to independent director should be practically solved. The listed companies should be responsible for the joining of independent director, managing to hire independent director of higher and higher education. The listed companies should ensure independent directors fulfill their responsibilities, reasonably prolong their tenure, enhance independent directors'sense of responsibility in participation in the business operating, and pay more attention to the specialized opinion proposed by independent director.The innovations of this dissertation are as follows:①The author elaborated systematically theories of the independent director system and financial report fraud, and elaborated the relationship between the independent director system and the financial report fraud, which has not been seen in previous studies of literature.②Reviews the domestic and foreign literature, studies on the relationship between the independent director's characteristics and the financial report fraud, concentrating mostly on the independent director's proportion, annual compensation, participating the board of director conference, stock ownership, and tenure in office as well as accounting education background, and so on. Besides researching previous characteristics, this article also has studied some other characteristics including independent director's age, the education level (years of schooling) and the independent directors'stating specialized opinion which influence financial report, this research has broadened the scope of independent director's characteristics.③The article adopts the positive method. By using such technique to enhance the effectiveness of research greatly, the research conclusion has also been more scientific and reasonable. The research results can propose some references for the decision-making body perfecting the corporate governance structure, establishing the highly effective independent director system, serving well for young shareholder, prohibiting the occurrence of financial report fraud as far as possible. Because there is short of a systematic and thorough research, therefore, the discussion and the policy-oriented suggestions about how to improve independent director system in our country, preventing financial report fraud, protecting shareholders'interests, are to some extent unsound and immature. Perhaps it's more significant to initiate and invite in more valuable ideas. |
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