Independent Directors Voluntarily Resign And Non-standard Audit Opinions

Independent directors play a very important role in the company governance.As the representatives of the interests of minority shareholders,independent directors can use their professional knowledge and independence to effectively avoid all kinds of risks for the company in the process of operation,strengthen the company governance,and maximize the benefits.However,in China,the designation and salary level of independent directors are decided by the major shareholders and management staff of the company.As a result,it is hard for the independent directors to work independently and objectively,and the effectiveness of the independent director system is questionable.In recent years,the Organization Department of the Central Committee has enacted the relevant provisions and further standardized the requirements on independent directors,leading to the passive resignation of many independent directors.In the capital market,the implied information behind the independent director resignation also attracts the attention of the external information users.The independent director resignation often indicates the defecte in the internal governance.Typically,a company with major defects in company governance has imperfect internal control and high financial report risks.Consequently,the company is more likely to be issued non-standard audit opinions.Therefore,deep study on the hidden information behind the active resignation of independent directors is significant for external information users,and it also helps strengthen company governance and improve market regulation.This paper selects samples from independent director resignation events of A-share listed companies in China within 2011 to 2013 and 2015 to 2016.This paper empirically studies the relationship between the independent director resignation events and audit opinions of companies.Additionally,this paper further studies whether the academic background and reputation of resigning independent directors affect the audit opinions,expanding the scope of the research on independent director resignation.The empirical result shows that a company with active independent director resignation events is more likely to be issued non-standard audit opinions than a company without active independent director resignation events.This result also indicates that a company with active independent director resignation events often has defects in the company governance and high financial report risks.A further study shows the academic background and reputation of resigning independent directors significantly affect the audit opinions for companies.If an independent director with a higher academic background and reputation resigns from a company,it often means the company has a more imperfect internal governance mechanism and higher financial risk,and therefore the company is more likely to be issued non-standard audit opinions.Based on the results of empirical tests,this paper proposes suggestions from three aspects,mainly including improving guidance,raising the level of supervision and management,perfecting the resignation information disclosure system,and regulating resignation behavior.The contribution of this paper is studying the causes and consequences on the independent directors' choice.It expands the research on the individual characteristics of independent directors,and has a certain reference value for the users of capital market information,which will help strengthen the supervision department.