تراز مالکیت، اثربخشی نظارت مدیران مستقل و کیفیت پیش بینی‏های درآمدی مدیریت

In the Chinese securities market, with its characteristics of influence through personal relationships (Guanxi) and underdeveloped standards of law and enforcement, can independent directors play the supervisory role expected by securities regulators? In this study we use the degree of precision and accuracy in corporate earnings forecasts as proxies for the quality of information disclosure by listed companies and examine the supervisory efficiency of independent directors with respect to information disclosure. Using data from 2007 to 2009, we find that in the absence of ownership balance, independent directors have a significant positive effect on the accuracy of management forecasts. In addition, the personal backgrounds of independent directors have specific effects on management earnings forecasts. Directors with certified public accountant (CPA) expertise significantly improve the precision of management forecasts. However, directors with industrial expertise significantly reduce the precision of management forecasts. In other words, having directors with CPA expertise improves the independence of boards, but having independent directors with industrial expertise has the opposite effect

The absence of ownership balance and the popularity of a single large shareholder are the most commonly mentioned causes of malpractice in Chinese share markets. Therefore, investors have for many years been calling for boards of directors with greater independence. In 2002, the Chinese Securities Regulatory Commission (CSRC) moved to improve the corporate governance structures of Chinese listed companies by issuing The Guiding Opinions on the Establishment of Systems of Independent Directors (hereafter referred to as the Guiding Opinions). Thereafter, the efficiency of independent directors became one of the most widely studied fields in the Chinese capital market. There are many extant studies on the relationship between independent directors and firm performance, which generally agree that supervision is the most important responsibility of independent directors ( Ye et al., 2007, Wang, 2007a and Zhao et al., 2008). Recently, Wang et al. (2008) argue that the improvement in listed companies’ levels of disclosure and transparency serves both to curb the dominance of large shareholders and to provide a basis for the appraisal of independent directors’ supervisory efficiency. In testing this theory, the main question that previous studies confront is how to measure the level of information disclosure in listed companies. The easiest and most accepted way is to use the rating scores given by independent institutions.1 In China, however, only companies listed on the Shenzhen Securities Exchange (hereafter referred to as the SZE) are rated annually and those on the Shanghai Securities Exchange are not. The sample of rated companies is therefore limited, which raises difficulties for using rating scores as a proxy for the level of information disclosure. Because of this difficulty, previous studies have usually used variables such as earnings quality to proxy for the level of information disclosure. The measurement of earnings quality requires the use of statistical models and the derived variables may not be significantly related to the quality of information disclosure. For example, among the three variables used by Hu and Tang (2008), only the degree of earnings aggressiveness is significantly related to the rating scores given by the SZE and the degree of earnings management or earnings smoothness are not. Another way to measure the level of information disclosure is to study the quality of one specific aspect of corporate reporting. The assumption here is that a measure of disclosure quality produced by examining any one aspect of corporate reporting could proxy for the general level of disclosure provided by a firm (Botosan, 1997). This assumption was tested and confirmed by Lang and Lundholm (1996), who document a significant rank-order correlation between annual report and other publication disclosure rankings, compared with the correlation between annual report and investor relations disclosure rankings. Building on this approach, Botosan (1997) used the degree of voluntary information disclosure found in a firm’s annual report alone to serve as a proxy for the degree of disclosure provided by a firm across all avenues and created a transparency scoring system called the DSCORE. Li (2008) scored companies based on the readability of annual reports. Other studies ( Graham et al., 2005 and Wang, 2007b) have used the attributes of management earnings forecasts to proxy for the general level of disclosure. For Chinese listed companies, Bai (2009) find that the precision and the accuracy of management forecasts are significantly related to the transparency rating scores given by the SZE. In line with this approach, we choose the precision and accuracy of management forecasts to proxy for the general level of disclosure and use this measure to study the supervisory efficiency of independent directors. We choose the quality of management forecasts to proxy for the general level of corporate disclosure for three reasons. First, management forecasting is an important aspect of corporate disclosure that has a significant influence on investors and financial analysts (Bai, 2009 and Healy and Palepu, 2001). Numerous studies have used the quality of management forecasts to proxy for the level of information disclosure, such as Graham et al., 2005 and Wang, 2007b.2 Second, there is considerable scope for manipulation in management forecasting. Studies on voluntary management forecasts have found that management can manipulate the timing, precision and accuracy of management forecasts (Karamanou and Vafeas, 2005 and Rogers and Stocken, 2005). In Chinese share markets, most management forecasts are mandatory and securities regulators specify the timing of disclosures. However, there are no specifications concerning the precision and accuracy of management forecasts and this deficiency provides management with many opportunities to manipulate forecasts.3 This variability in forecasting standards provides us with a good opportunity to examine the supervisory efficiency of independent directors.4 Third, it is very easy to measure the quality of management forecasts in hindsight, without the use of sophisticated statistical models. Our study makes two main contributions. First, we use an easily measureable proxy for the general level of corporate disclosure to examine the supervisory efficiency of independent directors in companies with varied ownership structures. The results are complementary to those found by previous studies, such as Wang et al. (2008), and also provide insights into the influence that independent directors have on improving transparency. Second, we examine the factors influencing mandatory management forecasts and compare them with factors influencing voluntary management forecasts. This comparison provides relatively solid support for the improvement of regulations on management forecasts in China. The remainder of this paper is organized as follows. Section 2 discusses the institutional background and reviews the related literature. Section 3 develops our research hypothesis and provides variable definitions. Section 4 reports the empirical results and Section 5 concludes the study.

Management forecasts are an important part of listed firm’s information disclosure (Bai, 2009) and independent directors should play key supervisory roles in improving the quality of such forecasts (Wang et al., 2008). Therefore, we might expect that the increased presence of independent directors should improve the quality of management forecasts. Our results indicate that in the case of companies with lower ownership balance, independent directors do improve the precision of management forecasts, but they have no significant effect on the bias or error of management forecasts. In the case of companies with higher ownership balance, independent directors tend to have negative effects on the quality of management forecasts. The results suggest that the effects of independent directors’ expertise are varied. Independent directors who are also CPAs can significantly improve the precision of management forecasts, but they have no significant influence on the accuracy of the forecasts. Independent directors with industrial or corporate governance backgrounds commonly have a negative effect on the precision of management forecasts. Independent directors with legal backgrounds have no significant effect on the precision of management forecasts, but they improve forecast accuracy in the case of companies with lower balance ownership. Overall, the supervisory efficiency of independent directors is relatively low. The expertise and skills of independent directors make little difference to the quality of management forecasts.