Author
Listed:
- Huiling Tang
(School of Accounting, Chonqing University of Technology, Banan, Chongqing 400054, China)
- Shili Tang
(School of Accounting, Chonqing University of Technology, Banan, Chongqing 400054, China)
- Jiyuan Li
(School of Accounting, Chonqing University of Technology, Banan, Chongqing 400054, China)
Abstract
Independent directors play a critical role in overseeing company management, safeguarding the interests of both the company and its shareholders, and ensuring that decisions made by the board are scientific, rational, and fair. Directors with industry expertise bring greater experience and knowledge to their roles, enabling them to prevent short-sighted decision-making while preserving their professional reputations. This research empirically examines whether the industry expertise trait of independent directors can inhibit the irregularities of the companies they serve, using a fixed-effects model that controls for industry, company, and year, with Chinese A-share-listed companies from 2003 to 2023 as the observational sample. Endogeneity issues are addressed by using the Heckman two-stage model and the propensity score matching (PSM) model. The findings reveal that (1) independent directors with industry expertise significantly mitigate corporate violations; and (2) their influence primarily stems from improvements in the quality of information disclosure, enhancements to internal control systems, and the resolution of principal–agent conflicts. Further analysis indicates that the restraining effect of independent directors with industry expertise is particularly pronounced in environments characterized by low institutional ownership and fewer analysts, highlighting their stronger supervisory role in such contexts.
Suggested Citation
Huiling Tang & Shili Tang & Jiyuan Li, 2026.
"Industry Expertise of Independent Directors and Firm Misconduct: Evidence from China,"
IJFS, MDPI, vol. 14(2), pages 1-22, February.
Handle:
RePEc:gam:jijfss:v:14:y:2026:i:2:p:45-:d:1864760
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