Analysis On Interlocking Directorate,Associated Firms And Spillover Effects From Financial Reporting Fraud

Before1970s, the board of directors in America list companies was controlled by inside directors, most of them were friends of CEO. The Watergate scandal in the early1970s prompted the Securities and Exchange Commission to take actions to review the financial reporting and control internal violations. They required all listed companies to establish an audit committee composed of independent directors. CSRC promulgated Guidelines for the establishment of IDS of listed companies in2001,according to the normative documents, listed company should establish independent directors system. Independent directors carry out their duties independently, not affected by the listed company major shareholders, actual controllers or others who are interested parties of the listed company unit or individuals. The independent directors at most take positions in5listed companies in principle, and make sure that they have enough time and energy to effectively perform the duties of independent directors. Because of its independence, the independent directors appeared, they can take positions in many companies, this then generated the interlocking directorates. And due to this relationship between companies, more problems occurred, this become the focus of attention of the scholars study.Financial fraud research at home and abroad is not rare, especially abroad, from a financial fraud theory, to motivation, to identify, to governance research is almost do reach every aspect of a matter. The other researches on problems derived from financial fraud, such as financial fraud on corporate value, and the executive liquidity problems generated by financial fraud are not uncommon. Compared to foreign countries, our domestic research focus on the identification, influence factors and the countermeasures of financial fraud. On the problem of the relation, the research is only limited to the relationship between corporate governance factors and financial fraud, the consequences of financial fraud is also very little. The study of effects of spillover relies on the interlocking directorate as the information channel is still a blank.Based on this, the sample of this paper is about86pieces of record of84 a-share listed companies which were condemned by securities regulatory commission because of financial fraud and the190companies interlocked by240outside directors,we discuss whether these associated companies interlocked by interlocking directorate are influenced by the spillover effect after the primitive companies condemned by CSRC. Besides,we analysis which corporate governance factors of the associated companies can explain the spillover effect, we proceed descriptive statistics for the sample, and established the panel data model, analyzed the relationship between the corporate value of the associate firms which have the same director with companies announced by CSRC and the corporate governance indicator, and then, we conclude:(1) The likelihood of associated firms experiencing significant fraud penalties spillover decrease when these firms have the dual CEO and chairman position;(2) The likelihood of associated firms experiencing significant fraud penalties spillover decrease when these firms have more board meetings;(3) The likelihood of associated firms experiencing significant fraud penalties spillover increase when these firms have a big ownership concentration Z index.