The Research On The Relevance Of Board Of Supervisors Human Capital,Ownership Concentration And Financial Fraud In Chinese Listed Companies

Lacking of respect for the accounting independence, the company executivesusually try to manipulate financial workers and auditors and persuade them to coverthe real state of operation and cash flow about the enterprise, even at the cost to fraudfor their own some purpose. Financial fraud has already been more than300yearsand a deep headache problem for business and academia. Since the early1990s,financial fraud events emerged in endlessly in domestic capital market, andinfluenced seriously the healthy development of China’s capital market. How toprevent and control financial frauds of the listed companies, scholars both domesticand overseas carried a lot of researches. The board of supervisors is not only a part ofthe corporate governance structure, but also enjoys the rights and responsibilities tosupervise the company management in Company Act in China. And in theory, it hascertain restraints on the company’s financial frauds. In the past, scholars had madesome empirical researches about characteristic variables of the board of supervisors,such as the scale of the board of supervisors and so on. Based on the previousresearch achievements, this paper tries to make a study of the relationship betweenthe human capital from board of supervisors and the financial frauds of listedcompanies from the point of view of human capital of the board of supervisors.Based on the resource-based theory, this paper selects listed companies whichhad the financial frauds during2007-2010in Shenzhen and Shanghai of China as thesamples, and uses the logistic regression model. We study the impact of the humancapital of the board of supervisors on financial frauds of the enterprises, from theviews of the average age of the board of supervisors, the average education degreeand professional level of the board of supervisors and so on. Then we further analyzeadjustment of share concentration ratio on the relationship of human capital of theboard and financial frauds of the enterprises. The empirical study finds that:(1)The average age of the board of supervisorshas a negative correlation with financial fraud. Comparing with the young man’sadventure, the older members of the board of supervisors expect more stableenvironment and safety strategy to make the company smooth development, which isvery favorable of further restraining financial frauds.(2) The average educationdegree of the board of supervisors and financial fraud negatively correlate. Educationdegree of the members of the board of supervisors reflects their comprehensivequality, and the board of supervisors with the higher education level can play to itssupervisory function more effectively.(3)The professional level of the board ofsupervisors negatively correlates with the financial frauds of listed company. Theboard of supervisors has higher percentage members with financial and legalprofessional background, and this makes for suppressing financial fraud. Theeffective supervision function of the board of supervisors may need all aspects ofdifferent knowledge. However, supervising financial frauds mainly depends on themembers, knowledge which contains financial policy, Accounting Standards, theCompany law, the Securities law and other relevant policies and regulations.(4) Thehuman capital of the board of supervisors negatively correlates with financial frauds.The higher the human capital level of the board of supervisors is, the better thefinancial supervision is and the lower the probability of financial fraud is.(5) Theshare concentration ratio adjusts the governance effect of the board of supervisors.That is, the higher the ownership concentration is, the littler the human capital of theboard of supervisors influence on the financial fraud. This is because that theownership concentration is higher, and the controlling shareholders will report theaccounting information based on their own interests. And on the other hand, the boardof supervisors is under control of big shareholder, and makes the financial fraudeasier.According to the research findings, we put forward some relevant policy advice.First, the listed companies need to ascend the human capital level of the board ofsupervisors from external selection and internal training. Second, the listed companiesshould deepen the reform of equity division and gradually change the equity of weld, and give the board of supervisors enough power to play to its supervisory functionfully.