The Influence Of The Resignation Of Politically Connected Independent Directors On Earnings Management

Independent directors are set up to enhance corporate governance and make sure listed companies’compliance,so supervisory function is one of independent directors’important functions.But there is a special kind of independent director,politically connected independent directors.The reason why listed companies employ politically connected independent directors often lies in constructing political connections and obtaining political resources.This motivation is not in line with the objective of establishing independent directors.And existence of political connection is an impediment to marketization process and the fight against corruption.On October 19,2013,the Organization Department of the CPC Central Committee issued((The opinions on further regulating party and government leading cadres to hold part-time jobs in enterprises》,which triggered a large-scale resignation of politically connected independent directors.Based on this exogenous event,firstly,this paper chooses the experimental group from companies with the resignation of independent director in 2014.Secondly,this paper matches the control group with PSM.Thirdly,this paper examines these things with DID,including influence of the resignation of politically connected independent directors on earnings management,influence of the resignation of politically connected independent directors with different ranks on earnings management,and influence of the resignation of politically connected independent directors on earnings management of the companies with different property rights.According to the results,after politically connected independent directors resign,company’s earnings management significantly reduced,which indicates that the resignation of politically connected independent directors triggered by "Rule 18" has a positive effect on earnings management.The higher the rank,the greater the positive effect.Earnings management of state-owned enterprises decrease but not significantly.Earnings management of non-state-owned enterprises decrease significantly.It shows that the resignation of politically connected independent directors has a more positive effect on earnings management of non-state-owned enterprises.The significance of this study lies in enriching the researches on the function of independent directors based on the resignation of politically connected independent directors triggered by "Rule 18" and the researches on political connection and earnings management.And from the national macro perspective and the company micro perspective,this paper provides support and recommendations for the decisionmaking and implementation of the follow-up policy and management.