Analysis of the relationship between earnings management and board structure in China

Abstract

This paper aims at investigating the specific relationship between board structure characteristics and level of earnings management among the listed firms of Shanghai and Shenzhen stock exchange, China. The measurement of earnings management is discretionary accruals (DACC), which is calculated by Modified Jones Model. Our sample consists of 1476 firms over the period of 2013 to 2016. The result reveals that the board structure characteristics is effective in reducing the level of earning management. We find a significantly negative association between the level of earnings management and board structure characteristics such as board size, board composition and audit committee. The findings broaden the scope of the importance of board structure in reducing earnings manipulation. Some studies have been conducted in this area, but in recent years such studies with empirical evidence given are rare, so the paper resolves the issue of the lack of latest research in China.