Empirical Study On The Impact Of The Independent Director System In China's GEM Listed Companies On The Earnings Management

The separation of company ownership and management gives rise to the problem of insider control. In China, due to the highly concentrated stock rights of listed companies,there is a widespread phenomenon in which controlling shareholders manipulate the board of directors and infringe the interests of minority shareholders. In order to solve the insider control problem, optimize the governance structure of listed companies, lower the earnings management and standardize the order of the securities market, the independent director system has been introduced by the securities regulatory institutions. However, from the establishment at the first beginning to the development, the independent director system may not go smoothly, and its effectiveness has always been doubted by people. In this paper, the effectiveness of the independent director system is discussed from the perspective of the earnings management by combining the practices in the past dozen years, and some suggestions to the improvement of China's independent director system are put forward for some specific problems based on the theoretical analysis and empirical studies.In this paper, theoretical and empirical research and discussion are carried out for the above mentioned problems based on the study of domestic and foreign literatures of related fields. At first, definition of independent director, establishment and development of the independent director system are illustrated and the Growth Enterprises Market independent director system is introduced. Afterwards, the concept, type, measure of earnings management is introduced, and the theoretical basis for the impact of independent director system on the earnings management is illustrated after the introduction of the basic conditions of Growth Enterprises Market in China, and mechanism of the impact of independent director system on the earnings management is analyzed. Finally, empirical study on the correlation between the independent director system and earnings management of listed companies is carried out with the Growth Enterprises Market data and theoretical analysis.The following conclusions are reached through the empirical study:(1) There is a positive correlation between the proportion of independent directors in Growth Enterprises Market listed companies and accrual surplus management. According to research results of Hu Yiming and Tang Songlian(2008), the reason may be that companies with relatively low accrual earnings quality prefer keeping a relatively high proportion of independent directors;(2). There is significant negative correlation between the financial independent director and accrual earnings management and real earnings management, showing that independent directors with certain financial knowledge and experience can effectively exert the function of supervising control and balance, increase the financial knowledge training and popularization of financial independent directors or independent directors, and help restrain the accrualearnings management and real earnings management of listed companies;(3) There is an evident negative correlation between the independent director's compensation and the accrual earnings management and real earnings management. It can be learnt that the more the compensation of independent director is, the stronger the sense of responsibility will be, the higher the working enthusiasm will be, and the greater the function of monitoring and consulting will be;(4) There is no evident correlation between the educational background of the independent director and accrual earnings management, and there is significant negative correlation between the educational background and real earnings management. The higher the educational background is, the more favorable it will be for improving the overall quality of the board of directors, which may prevent the real earnings management of listed companies;(5) There is evident negative correlation between the proportion of the personal presence of independent directors at the board and the accrual and real earnings management.Therefore, it can be learnt that the proactive participation of independent directors in the management activities and grasp of company operations through attending the board can improve the earnings quality of listed companies effectively.