Resignation Of Independent Directors, Material Deficiencies Of Internal Control Andquality Of Financial Report

Independent directors is an important institutional arrangement in the company internal control structure,but because of the hiring and remuneration of independent directors has been decided by the real controller of the company,it’s difficult for them to work independently and objectively. Thus, the effectiveness of the independent directors has been questioned for a long time.Simultaneously,the resignations of independent directors are repeatedly reported,that makes the public began to pay attention to the behind message of the resign behavior.The voluntary resignation of independent directors often showed the company had material internal control deficiencies, and the companies with material internal control deficiencies would have a lower quality of financial report. Therefore, it is important for the market supervisors to study the signal of the voluntary resignation of independent directors. The paper examined the signal function of the resignation of independent directors based on the announcement of listed companies in the Chinese Securities Market from 2011 to 2013.It not only provide an evidence for the regulatory authority to establish and improve the mechanism ofresponsibility of independent directors, but also expanded to the research range of the resign behavior of independent directors.Through empirical analysis, we found that the voluntary resignation of independent directors is significantly positive to material deficiencies of internal control and modified audit opinions. The finding indicates that independent directors choose to leave could signal the company’s material internal control deficiencies and low quality of financial reporting. Further research found that the age of independent directors would influence the strength of the signal, if the voluntary resignation of young directors occurred, the quality of financial reporting would be higher.