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Politically connected independent directors and corporate fraud in China

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  • Dongmin Kong
  • Junyi Xiang
  • Jian Zhang
  • Yiyang Lu

Abstract

This study investigates the effect of politically connected independent directors on a firm's likelihood of committing fraud in China. We classify the political backgrounds of independent directors into three categories based on their employment histories: local background, central background, and local and central background. Using corporate fraud data from 2000 to 2014, we find that independent directors with local political backgrounds significantly reduce the likelihood of a firm committing fraud. Further analysis shows that locally connected independent directors are more likely to have both employment experience in regulatory agencies and financial/accounting/law expertise.

Suggested Citation

  • Dongmin Kong & Junyi Xiang & Jian Zhang & Yiyang Lu, 2019. "Politically connected independent directors and corporate fraud in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(5), pages 1347-1383, March.
    • Handle: RePEc:bla:acctfi:v:58:y:2019:i:5:p:1347-1383
    DOI: 10.1111/acfi.12449
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