An Empirical Research On The Relationship Between Independent Directors’ Background And Accounting Changes Of The Listed Companies

In August2001, the CSRC promulgated the "Guiding Opinions", established the independent director system in China formally. As the first step of listed companies hiring the independent directors, the background of the independent directors plays a very important role on independent director system construction and utility. Because the supervision mechanism in our country is not perfect, the phenomenon of accounting information manipulation through accounting changes becomes a big problem in capital market. Therefore, based on the different backgrounds of the independent directors, this paper is to study the relationship between the independent directors’background and accounting changes, and hope to make up for the blank of domestic research in this study and obtain the valuable results.This study has an in-depth understanding of the background, effect and influence of independent director system by collecting and reviewing the domestic and foreign relative literature, and analyzes what kinds of background characteristics of independent directors may affect listed companies’ behavior, and how they affect the listed companies’ accounting behavior. This is the theoretical basis of empirical study.According to the domestic and foreign research literature, the classification of the independent directors’ background is very complicated. Age, gender, education background, etc. all can be considered as the background of independent director. The researchers have different opinions, so there is no established standard about the classification. Among these factors, some are studied by only a few people, some are studied by many people, some data is incomplete, and some is complete. In terms of definition of independent directors’ background, this paper focuses on the professional and the vocation background. Given full consideration to the current characteristics of professional and vocation, we divide the background of independent directors into4categories:accounting, legal, technical and retired government officials. On the analysis of the relationship between the background of independent directors and listed companies’ accounting changes, this paper proposes four hypotheses:(1) The independent directors of accounting profession have negative effect on the degree of the accounting changes.(2) The independent directors of legal profession have negative effect on the degree of the accounting changes.(3) The independent directors of technical profession have negative effect on the degree of the accounting changes.(4) The independent directors of the retired government officials have positive effect on the degree of the accounting changes.In the part of empirical research, firstly, we collected the financial reports in2009-2011of listed companies on Shanghai stock market, and find out the professional and vocation background of independent directors from the csmar data base. Then we classified their background into the4categories mentioned above. Secondly, we collected all the accounting changes of listed companies, including what changes had happened, and how they changed. We use the proportion of the current net profit changes caused by accounting changes and prime operation revenue to measure the degree of accounting changes. Thirdly, established the regression models, take the four kinds of backgrounds as the independent variables, the degree of accounting changes as the dependent variable, and connect both of them through the models. Finally, made statistical analysis and empirical test. At last, we got the results as follows:(1)The independent directors of accounting profession and technical profession have a significant inhibitory effect on accounting changes.(2) The independent directors of legal profession do not have a significant effect on accounting changes; to the contrary, the relationship between them is positive.(3) The independent directors of the retired government officials have a significant positive effect on accounting changes. On the basis of research conclusions, we proposed policy and recommendations such as strengthen the construction of independent directors’ functions and powers, empower them more to excise their rights, improve the internal structure adjustment of independent directors and enhance the information transparency of listed companies, and so on.This paper also has some disadvantages, such as does not fully exploit background characteristics of independent directors, the reputation variable was not considered in the independent directors’ background, etc. In future study, we can make a more detailed and more comprehensive classification of independent directors’ background, in order to increase the reliability and credibility of the empirical results.