An Empirical Research On The Relevance Of Dynamic Financial Fraud And Board Of Supervisors Characters In Chinese Listed Companies

Because of lack of respect for the independence of the accounting, corporate executives often try to dominate finance staffs and audit staffs, encourage them to cover up the true state of business and corporate cash flow, or even fraud. As "white-collar crime", financial fraud has three hundred years of history, with a large and deep impact shocking the world. World capital market is experiencing a crisis, which makes public investors unbearable .How to effectively inhibit the listed company's financial fraud, has become a problem which academia cannot ignored .Theoretically, as part of corporate governance, board of supervisors could monitor and inhibition the occurrence of corporate financial fraud .On the other hand, academics governance have not formed the same conclusion about the effectiveness of the board of supervisors. Many scholars consider that the governance of board of supervisors is ineffective, and suggest banning the supervision board like Anglo-American law. However, these studies did not have a depth research on the intrinsic relationship between the governance of board of supervisors, external supervisory system, and internal governance mechanisms, but also lack convincing empirical results to support. Based on this, this paper will make empirical analysis about if the board of supervisors of listed companies will be able to suppress the occurrence of corporate financial fraud , in order to make up for gaps in research. Selecting China's listed companies in financial fraud from 2003 to 2009 period as the study sample, using binary logistic model, scaling from the board of supervisors, board of supervisors meeting frequency, independence of supervisory board ,and the shareholding, this paper make an empirical study about the relationship between characteristics of the board of supervisors and financial fraud.The results show that: (1) Size of board of supervisors and corporate financial fraud has a U-shaped relationship, and when size of the board of supervisors is 3 or 4, the inhibitory effect of corporate financial fraud is best. Smaller or greater than optimal value, the oversight functions of the board of supervisors cannot be fully effective play on the corporate financial fraud as well as reduce the inhibitory effect. (2) but the shareholding of supervisory board is generally low in China;Shareholding incentive can effectively stimulate the enthusiasm and supervisory effectiveness of the board of supervisor members, and reduce moral hazard, which occurs more obvious when financial fraud happen several times in one company.(3)The number of board of supervisors meeting and corporate financial fraud have a positive correlation; frequency of supervisors board meetings held in response from one side of the quality risks about business financial information disclosure.In addition, when financial fraud occur only once in one company, the supervisory board members tend to communicate through holding board meetings; but with the increase of the number of financial fraud, numbers of supervisors meeting is reduced .(4)The independence of supervisor board will help increase the functions of supervision effectively, and reduce the occurrence of corporate financial fraud to some extent.Based on the empirical study,this paper proposes that board of supervisors can suppress the occurrence of corporate financial fraud of listed companies. Such as enhancing the independence of the board of supervisor, Strict controlling the operating costs of board of supervisors, to strengthen and improve the terms of board of supervisors, improve the incentive mechanism, and establishing a good reputation mechanism.