Independent director, earnings conservatism, investments opportunity-empirical evidence from Chinese listed companies

摘要

Prior studies document mixed evidence on the efficacy of independent directors. Different from prior studies, as an important environmental factor, investment opportunity (IO) is adopted to explain the mixed impact of independent directors on earnings conservatism for China listed companies. This paper documents ① no significant association between earnings conservatism and the percentage of independent director on board ② positive association of earnings conservatism with the percentage of independent directors on the board for Non High-IO firms. Such association declines significantly when IO increases. These findings potentially explain the mixed evidence in prior studies regarding the monitoring efficacy of independent directors on managers. In particular, failure to consider investment opportunity that can influence the ability of independent directors to monitor management can contribute to mixed evidence on the efficacy of independent directors.