Corporate fraud and independent director's re‐appointment: Information hypothesis or favouritism hypothesis?

Xiaoliang Lyu, Xiaochen Zhang
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Abstract

Using the analytical framework of social identity theory, this paper explores how a special corporate governance arrangement in the Chinese capital market, i.e., independent directors' re‐appointment, affects corporate ethical behaviours. Using the bivariate probit model, we find that independent directors’ re‐appointment significantly increases corporate fraud propensity, indicating that the favouritism towards re‐appointed independent directors by firms generated from social identity plays a dominant role in the corporate governance outcome in a relationship‐based society. Our results remain consistent after using an exogenous shock to alleviate the endogenous problems. The policy implication of this paper is that the corporate arrangement of re‐appointed independent directors in the Chinese capital market may impair stakeholders’ benefit and weaken business ethics. Top‐level institutional design should be improved and consider thoroughly the effects of social identity on corporate governance outcomes.
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公司欺诈与独立董事连任:信息假说还是偏袒假说?
本文运用社会认同理论的分析框架,探讨了中国资本市场上的一种特殊公司治理安排--独立董事连任--如何影响企业道德行为。利用双变量 probit 模型,我们发现独立董事连任会显著增加企业的欺诈倾向,这表明在关系型社会中,社会认同所产生的企业对连任独立董事的偏好对公司治理结果起着主导作用。在使用外生冲击缓解内生问题后,我们的结果仍保持一致。本文的政策含义是,中国资本市场中重新任命独立董事的公司安排可能会损害利益相关者的利益,削弱商业道德。应完善顶层制度设计,充分考虑社会认同对公司治理结果的影响。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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