| Summary: | The widespread of earnings management leads that the reliability of disclosed financial information is in question. Earnings management stems from the imperfect corporate governance structure. Managers use the defects in corporate governance, intervening in the presentation of financial reports. Due to the fraud and financial scandals, related information users would have difficulty in measuring the corporate value effectively. Also, resource allocation in the capital market would be influenced. Therefore, how to control the level of earnings management has aroused great attention in the world. As the core of corporate governance structure, the board plays a vital role in guaranteeing the accuracy of the firm’s financial reports, which finally influences the degree of earnings management.
This paper analyses the relationship between the board characteristics and the degree of earnings management from the perspective of principal-agent theory and resources dependency theory based on the review of related literature. 3,459 firm-years observations of Chinese listed companies are selected as research samples and the modified Jones model is used to measure abnormal accruals, which are proxies for the level of earnings management. Related regression is conducted to measure the relationship between board characteristics and the level of earnings management. As shown in regression results, there is a positive association between board diligence and the degree of earnings management. A firm with the same chief executive officer and chairman is likely to involve in earnings manipulation. Besides, the higher the proportion of independent directors among all directors, the more likely the firm participates in doing earnings management.
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