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Independent directors with auditing expertise, overconfident CEOs and overinvestment in China

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  • Li, Yunying
  • Li, Naihao
  • Lawrence, Lei Hong Weng

Abstract

This study examines how independent directors with different types of auditing expertise affect listed companies' inefficient investment behavior. We posit that the independent directors with auditing expertise will reduce agency risk and improve companies' governance on investment. Consequently, a high proportion of independent directors with auditing expertise can significantly inhibit companies' overinvestment behavior. We then further explore the effect of independent directors with different characteristics, namely certified public accountants (CPAs), senior accountants and professors (or associate professors) of finance accounting on companies' investment. Moreover, we also argue that overconfident CEOs will curb the governance effects of independent directors with auditing expertise on CEOs' overinvestment behavior. Our empirical findings support our propositions.

Suggested Citation

  • Li, Yunying & Li, Naihao & Lawrence, Lei Hong Weng, 2025. "Independent directors with auditing expertise, overconfident CEOs and overinvestment in China," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:pacfin:v:91:y:2025:i:c:s0927538x25000708
    DOI: 10.1016/j.pacfin.2025.102733
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    1. Hanbin Lin & Char-Lee Lok & Tingting Xie, 2026. "The Effect of CEO Overconfidence on Overinvestment of Listed Firms in China: The Moderating Role of Board Financial Expertise," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 10(3), pages 2043-2058, March.

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