Study On Independent Directors System On The Impact Of Financial Reporting Fraud

View of the positive role played by the independent director system on a U.S. public company governance issues, our government formally promulgated the guidance of establishment of independent directors in listed companies on August21,2001through continuous research, as well as to learn from success stories in the West. This indicates that China formally introduced the independent director system. But when it is treated as a panacea was introduced to China, the system was not to set up the original intention. It is very limited role to solve the corporate governance structure problem, financial reporting fraud and the interests of small investors. The occurrence of many listed companies’ financial reporting fraud seriously disrupted normal market order and damaged investors’ confidence. People have to ask what extent independent director system curbs the occurrence of financial reporting fraud.In this context, this article briefly combed the articles on the independent director system and financial reporting fraud at home and abroad firstly, which reflects the situation of domestic and foreign research. Secondly, I explain the concept of independent directors and financial reporting fraud, including basic definitions and characteristics which bring a good theoretical basis for empirical analysis. Thirdly, by the theoretical support, I proposed six relevant assumptions, and used logistic regression function to make a empirical analysis for paired study of20fraud companies. Then, I come out some conclusions. Finally, I give some recommendations to improve the system of independent directors for the empirical results of the analysis are given. I try to make the independent director system play a defensive role of financial reporting fraud, which can serve to prevent the internal control, protect the interests of minority shareholders and restore investors’ confidence.