ROLE OF INDEPENDENT DIRECTORS IN MITIGATING FINANCIAL STATEMENT FRAUD: INSIGHTS
DOI:
https://doi.org/10.29121/shodhkosh.v4.i2.2023.2466Keywords:
Independent Directors, Financial Statement Fraud, Corporategovernance, Altman Z-Score, Board Attributes, India, Audit Committee, Board DiversityAbstract [English]
The role of independent directors has gained increasing attention in corporate governance, particularly in their ability to mitigate financial statement fraud. This study investigates the relationship between board independence and the likelihood of financial fraud within Indian companies, using the Altman Z-score as a measure of financial health. The analysis explores how the proportion of independent directors on corporate boards impacts fraud detection and prevention, alongside other board attributes such as audit committee size, board size, and gender diversity. The findings suggest that a higher proportion of independent directors significantly reduces the likelihood of financial misreporting, enhancing transparency and accountability. The results highlight the critical governance role of independent oversight, emphasizing the need for stringent regulations and best practices to strengthen board independence in safeguarding financial integrity. These insights contribute to ongoing discussions on corporate governance reforms and provide practical recommendations for firms and policymakers to reduce fraud risk in emerging markets like India.
References
Abbott, L. J., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and restatements. Auditing: A journal of practice & theory, 23(1), 69-87. DOI: https://doi.org/10.2308/aud.2004.23.1.69
Agrawal, A., & Chadha, S. (2005). Corporate governance and accounting scandals. The Journal of Law and Economics, 48(2), 371-406. DOI: https://doi.org/10.1086/430808
Alzoubi, E. S. S. (2016). Audit quality and earnings management: evidence from Jordan. Journal of Applied Accounting Research, 17(2), 170-189. DOI: https://doi.org/10.1108/JAAR-09-2014-0089
Beasley, M. S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting review, 443-465.
Bhat, G., Hope, O. K., & Kang, T. (2006). Does corporate governance transparency affect the accuracy of analyst forecasts?. Accounting & Finance, 46(5), 715-732.Davidson, R., Goodwin‐Stewart, J., & Kent, P. (2005). Internal governance structures and earnings management. Accounting & Finance, 45(2), 241-267. DOI: https://doi.org/10.1111/j.1467-629X.2006.00191.x
Chang, C. (2009). The corporate governance characteristics of financially distressed firms: Evidence from Taiwan. Journal of American Academy of business, 15(1), 125-132.
Dhaliwal, D. A. N., Naiker, V. I. C., &Navissi, F. (2010). The association between accruals quality and the characteristics of accounting experts and mix of expertise on audit committees. Contemporary accounting research, 27(3), 787-827. DOI: https://doi.org/10.1111/j.1911-3846.2010.01027.x
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The journal of law and Economics, 26(2), 301-325. DOI: https://doi.org/10.1086/467037
García‐Meca, E., & Sánchez‐Ballesta, J. P. (2009). Corporate governance and earnings management: A meta‐analysis. Corporate governance: an international review, 17(5), 594-610. DOI: https://doi.org/10.1111/j.1467-8683.2009.00753.x
Jiang, W., Wan, H., & Zhao, S. (2016). Reputation concerns of independent directors: Evidence from individual director voting. The Review of Financial Studies, 29(3), 655-696.
Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of accounting and Economics, 33(3), 375-400. DOI: https://doi.org/10.1016/S0165-4101(02)00059-9
Larcker, D. F., Richardson, S. A., & Tuna, I. R. (2007). Corporate governance, accounting outcomes, and organizational performance. The accounting review, 82(4), 963-1008. DOI: https://doi.org/10.2308/accr.2007.82.4.963
Li, H., Pincus, M., & Rego, S. O. (2008). Market reaction to events surrounding the Sarbanes-Oxley Act of 2002 and earnings management. The Journal of Law and Economics, 51(1), 111-134. DOI: https://doi.org/10.1086/588597
Liu, G., & Sun, J. (2010). Director tenure and independent audit committee effectiveness. International research journal of finance and economics, 51.
Pathan, S. (2009). Strong boards, CEO power and bank risk-taking. Journal of banking & finance, 33(7), 1340-1350. DOI: https://doi.org/10.1016/j.jbankfin.2009.02.001
Sarkar, J., & Sarkar, S. (2009). Multiple board appointments and firm performance in emerging economies: Evidence from India. Pacific-Basin Finance Journal, 17(2), 271-293. DOI: https://doi.org/10.1016/j.pacfin.2008.02.002
Sharma, V. D., & Iselin, E. R. (2012). The association between audit committee multiple-directorships, tenure, and financial misstatements. Auditing: A Journal of Practice & Theory, 31(3), 149-175. DOI: https://doi.org/10.2308/ajpt-10290
Uzun, H., Szewczyk, S. H., & Varma, R. (2004). Board composition and corporate fraud. Financial Analysts Journal, 60(3), 33-43. DOI: https://doi.org/10.2469/faj.v60.n3.2619
Xie, B., Davidson III, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: the role of the board and the audit committee. Journal of corporate finance, 9(3), 295-316. DOI: https://doi.org/10.1016/S0929-1199(02)00006-8
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Deepika Arora, Dr. Renuka Sharma, Dr. Kiran Mehta
This work is licensed under a Creative Commons Attribution 4.0 International License.
With the licence CC-BY, authors retain the copyright, allowing anyone to download, reuse, re-print, modify, distribute, and/or copy their contribution. The work must be properly attributed to its author.
It is not necessary to ask for further permission from the author or journal board.
This journal provides immediate open access to its content on the principle that making research freely available to the public supports a greater global exchange of knowledge.
