Independent Director Reputation and Earnings Quality of Chinese Family Firms: The Role of Audit Committees
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| Title | Independent Director Reputation and Earnings Quality of Chinese Family Firms: The Role of Audit Committees
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| Author | Haijie Huang and Changjiang Lyu |
| Organization | School of Management, Fudan University |
| Email | Cjlu@fudan.edu.cn |
| Key Words | Corporate Governance; Family Firms; Independent Directors; Reputation; Earnings Quality |
| Abstract | We investigate the relation between independent director reputation and the earnings quality of Chinese family firms by studying the role of audit committees. Based on a sample of Chinese listed family firms between 2007 and 2011, we find firms with independent directors of audit committee being top university professors are related to higher earnings quality. This relationship is more eminent for audit committee chair and for top university professors with financial background. However, we don’t find this positive relationship for overall board independent directors. Our findings are robust to different measures of earnings quality, alternative university rankings, and endogeneity problem. This study provides empirical support for the reputation of independent directors on earnings quality. It proposes a distinctive measure for independent directors’ reputation under Chinese setting. It also highlights the role of audit committee in monitoring financial reporting quality. This study contributes to the corporate governance in family firms. Conflicts between controlling family shareholders and minority shareholders affect the earnings quality adversely. It is difficult but crucial for independent directors to maintain its independence to protect minority investors. Our paper suggests that reputation of independent directors plays an important role to motivate this independence. |
| Serial Number | WP715 |
| Time | 2014-09-25 |
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