TITLE:
How Do Companies Adjust their Independent Directors after a Mishap--Evidence from Independent Directors’ Background
AUTHORS:
Xinyi Zhang, Fan Zhou
KEYWORDS:
Independent Directors, Adjust, Background, Corporate Governance
JOURNAL NAME:
Journal of Service Science and Management,
Vol.3 No.3,
October
8,
2010
ABSTRACT: Selection of independent directors in China’s listed companies is a two-way choice dominated by listed companies. Thereafter, most companies adjust their independent directors after a mishap (e.g. receiving qualified audit opinions or punished by regulatory authorities). This paper investigates the behavior of how companies adjust their independent directors from the perspective of independent directors’ background, by using data of Chinese listed companies to which a mishap happened between 2002 and 2004 as our target sample. Evidence shows that listed companies will increase independent directors with accounting background significantly after receiving qualified audit opinions or punished by regulatory authorities, for the purpose of mitigating distress from capital market and medium and minority shareholders, which highlights the supervising role of independent directors with accounting background. Besides, these companies enjoy significantly contemporaneous return after the adjustment.