The Effect of the Directorate Characteristics on Earnings Management Based on Chinese Market Data

As the center of corporate governance, board of directors plays an important role in constraining earnings management. This paper examines the relationship between the composition, ownership and activity of board and earnings management. The empirical results based on 6832 data sample of listed Chinese firms show that the extent of earnings management is negatively related to the proportion of the independent directors, and is positively related to its square and the activity of the board measured by the board meetings frequency. By analysis the quadratic curve determined by independent directors, the optimal proportion is approximately 50%. On the other hand, the board size and board ownership are not significantly related to the earnings management. The findings provide empirical evidence for corporate governance reform and benefit improvement of financial reporting quality.