Independent directors with auditing expertise, overconfident CEOs and overinvestment in China

Abstract

This study examines how independent directors with different types of auditing expertise affect listed companies' inefficient investment behavior. We posit that the independent directors with auditing expertise will reduce agency risk and improve companies' governance on investment. Consequently, a high proportion of independent directors with auditing expertise can significantly inhibit companies' overinvestment behavior. We then further explore the effect of independent directors with different characteristics, namely certified public accountants (CPAs), senior accountants and professors (or associate professors) of finance accounting on companies' investment. Moreover, we also argue that overconfident CEOs will curb the governance effects of independent directors with auditing expertise on CEOs' overinvestment behavior. Our empirical findings support our propositions.