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Do Foreign Directors Mitigate Earnings Management? Evidence From China

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  • Du, Xingqiang
  • Jian, Wei
  • Lai, Shaojuan

Abstract

In this study, we use a sample of Chinese companies to examine the monitoring role of foreign directors in deterring earnings management. Our findings show that earnings management is significantly negatively associated with the presence and ratio of foreign directors on corporate boards. We further find that, under these conditions, earnings management is less pronounced in state-owned enterprises as compared to others. These findings are robust to various specifications of earnings management as well as to the approach used in matching the treatment and control samples. Interestingly, the negative impact of board membership of foreign directors on earnings management varies with audit quality, IFRS convergence, investor protection and the similarity or difference of the time zones of the foreign directors and China.

Suggested Citation

  • Du, Xingqiang & Jian, Wei & Lai, Shaojuan, 2017. "Do Foreign Directors Mitigate Earnings Management? Evidence From China," The International Journal of Accounting, Elsevier, vol. 52(2), pages 142-177.
    • Handle: RePEc:eee:accoun:v:52:y:2017:i:2:p:142-177
    DOI: 10.1016/j.intacc.2017.04.002
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    Keywords

    Foreign directors; Earnings management; State-owned enterprises (SOEs); China;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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