Watchdog from academia: Do academic independent directors matter for financial statement fraud?

We examine whether academic independent directors affect financial statement fraud. Using a sample of independent directors’ academic experience data for Chinese public firms, we find a significantly negative relation between academic independent directors and financial statement fraud. This finding is robust after applying various methods to address potential endogeneity concerns. Further analyses suggest that the negative relation between academic independent directors and financial statement fraud is more pronounced when academic independent directors are professors and possess accounting and technological expertise, sit on audit committees, compensation committees, multiple boards, and have relatively low-level compensation. In addition, the negative relation is stronger for non-state-owned firms and firms audited by small auditors. Overall, our findings suggest that academic independent directors are watchdogs for financial statement fraud.