Do corporate governance and disclosure tone drive voluntary disclosure of related-party transactions in China?

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Abstract

I investigate three important questions that are under-researched. First, do state ownership and foreign ownership via qualified foreign institutional investors programs (QFIIs) influence the extent of voluntary related-party transactions disclosure? Second, do independent directors and professional supervisors of China's two-tier board system improve the extent of the voluntary disclosure? Third, does the positive disclosure tone promote the extent of the voluntary disclosure? Using a hand-collected data set comprising 1,118 firm-year observations, the results reveal that foreign ownership via QFIIs, the proportion of independent directors, disclosure tone, and firm age have a significantly positive impact on the extent of voluntary related-party transactions disclosure, whereas firm size is negatively correlated. Other factors including state ownership, the proportion of professional supervisors, firm performance, Chief Executive Officer (CEO) duality, Big 4 auditor, and the ratio of related-party transactions to total assets are found to have no impact. Three key implications can be drawn from this study. First, China should carry out and strengthen its privatization program and promote QFIIs. Second, the one-tier board system should be considered for implementation when privatization reform is achieved and the roles and duties of independent directors are emphasized by law. Third, Chinese accounting convergence practices should be continued.

Original languageEnglish
Pages (from-to)30-48
Number of pages19
JournalJournal of International Accounting, Auditing and Taxation
Volume34
DOIs
Publication statusPublished - 1 Mar 2019

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Corporate disclosure
China
Disclosure
Voluntary disclosure
Related party transactions
Corporate governance
Independent directors
Institutional investors
Proportion
Privatization
State ownership
Foreign ownership
Supervisors
Firm performance
Factors
Chinese accounting
Firm size
Duality
Auditors
Chief executive officer

Cite this

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title = "Do corporate governance and disclosure tone drive voluntary disclosure of related-party transactions in China?",
abstract = "I investigate three important questions that are under-researched. First, do state ownership and foreign ownership via qualified foreign institutional investors programs (QFIIs) influence the extent of voluntary related-party transactions disclosure? Second, do independent directors and professional supervisors of China's two-tier board system improve the extent of the voluntary disclosure? Third, does the positive disclosure tone promote the extent of the voluntary disclosure? Using a hand-collected data set comprising 1,118 firm-year observations, the results reveal that foreign ownership via QFIIs, the proportion of independent directors, disclosure tone, and firm age have a significantly positive impact on the extent of voluntary related-party transactions disclosure, whereas firm size is negatively correlated. Other factors including state ownership, the proportion of professional supervisors, firm performance, Chief Executive Officer (CEO) duality, Big 4 auditor, and the ratio of related-party transactions to total assets are found to have no impact. Three key implications can be drawn from this study. First, China should carry out and strengthen its privatization program and promote QFIIs. Second, the one-tier board system should be considered for implementation when privatization reform is achieved and the roles and duties of independent directors are emphasized by law. Third, Chinese accounting convergence practices should be continued.",
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AU - Shan, Yuan George

PY - 2019/3/1

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N2 - I investigate three important questions that are under-researched. First, do state ownership and foreign ownership via qualified foreign institutional investors programs (QFIIs) influence the extent of voluntary related-party transactions disclosure? Second, do independent directors and professional supervisors of China's two-tier board system improve the extent of the voluntary disclosure? Third, does the positive disclosure tone promote the extent of the voluntary disclosure? Using a hand-collected data set comprising 1,118 firm-year observations, the results reveal that foreign ownership via QFIIs, the proportion of independent directors, disclosure tone, and firm age have a significantly positive impact on the extent of voluntary related-party transactions disclosure, whereas firm size is negatively correlated. Other factors including state ownership, the proportion of professional supervisors, firm performance, Chief Executive Officer (CEO) duality, Big 4 auditor, and the ratio of related-party transactions to total assets are found to have no impact. Three key implications can be drawn from this study. First, China should carry out and strengthen its privatization program and promote QFIIs. Second, the one-tier board system should be considered for implementation when privatization reform is achieved and the roles and duties of independent directors are emphasized by law. Third, Chinese accounting convergence practices should be continued.

AB - I investigate three important questions that are under-researched. First, do state ownership and foreign ownership via qualified foreign institutional investors programs (QFIIs) influence the extent of voluntary related-party transactions disclosure? Second, do independent directors and professional supervisors of China's two-tier board system improve the extent of the voluntary disclosure? Third, does the positive disclosure tone promote the extent of the voluntary disclosure? Using a hand-collected data set comprising 1,118 firm-year observations, the results reveal that foreign ownership via QFIIs, the proportion of independent directors, disclosure tone, and firm age have a significantly positive impact on the extent of voluntary related-party transactions disclosure, whereas firm size is negatively correlated. Other factors including state ownership, the proportion of professional supervisors, firm performance, Chief Executive Officer (CEO) duality, Big 4 auditor, and the ratio of related-party transactions to total assets are found to have no impact. Three key implications can be drawn from this study. First, China should carry out and strengthen its privatization program and promote QFIIs. Second, the one-tier board system should be considered for implementation when privatization reform is achieved and the roles and duties of independent directors are emphasized by law. Third, Chinese accounting convergence practices should be continued.

KW - China

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KW - Disclosure tone

KW - Voluntary disclosure of related-party transactions

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