Nomination Of Independent Directors,Ultimate Control Right And Earnings Management

"Only one controlling shareholder" and "insider control" is a common phenomenon in China's Listed Companies,which is vary from the western country.In Augst 2001,China Securities Regulatory Commission has approved Guiding Opinion About Building Independent Directors in the Listed Company(hereafter this text will be abbreviated as “the Guiding Opinion”),namely the board of directors,the board of supervisors,or the shareholders who individually or jointly hold more than 1% shares of listed companies may propose candidates for independent directors,and finally the decision will be made by shareholder's meeting through election.This rule tells us who can nominate the directors and the means of election,but the structure of stock was not considered in the rule.The sharp difference stimulates our thinking over the effectiveness of the independent directors' system in our country.Does the phenomenon in our country have an influence on the nomination of independent directors? Whether it causes the lackness of independent directors' independence?whether the ultimate control right affects the supervision effect of the independent directors?In this paper,according to the types of directors' nomination,we refined it into three kinds,namely independent directors' nominated by controlling shareholde,other shareholders and the board of directors(as the number of the nominated independent directors by the board of supervisors was less than 10,so the small sample was not included in this paper).This paper collected the data on the nomination of independent directors between 2006 and 2015,then studied the relationship between independent directors' nomination and earnings management through the multiple regression model.Based on the empirical results,we found the following three conclusions: firstly,compared with other shareholders who nominated the independent directors,if the independent directors nominated by the controlling shareholders,the level of the company's earnings management will be higher;secondly,compared with the company in which the ultimate control right is smaller,in the company in which the ultimate control right is bigger,if the independent directors be nominated by the board,the level of the company's earnings management will be higher;thirdly,compared with the companies in which the separation of ownership and ultimate control right is lower,in the company in which the separation of ownership and ultimate control right is higher,if the independent directors nominated by the controlling shareholders,the level of the company's earnings management will be higher.This paper studies the effectiveness of independent director system under the special ownership structure in our country.This study helps to improve the governance of listed companies and the independent director selection system,and provides new ideas for how to improve the supervision of independent directors in China.