Impact of the Independent Directors' Social Network on Earnings Management Before and During the COVID-19 Period


  • Ruixiong Qi Faculty of Business and Economics, Universiti Malaya, Kuala Lumpur, Malaysia
  • Anna Che Azmi Faculty of Business and Economics, Universiti Malaya, Kuala Lumpur, Malaysia
  • Azlina Abdul Jalil



Accrual-based earnings management, independent director, social network, COVID-19 pendemic


This study examines the impact of the independent directors' social network on earnings management before and during the COVID-19 pandemic. The COVID-19 pandemic increased uncertainty and pressure in the business environment, which led to intensified earnings management of listed companies worldwide. The research constructs centrality indexes of the independent director social network through the social network analysis method and conducts an empirical study on 1,167 A-share listed companies in China from 2009 to 2020. The relationship between independent directors' network centrality and accrual-based earnings management of companies is examined. Empirical results reveal that independent directors' network centrality is associated with higher accrued earnings management and undesirable corporate practices such as earnings management can be disseminated through directors' social networks. This research innovatively incorporates the research findings into the COVID-19 context, further indicating that independent directors' social network is associated with higher accrued earnings management during the COVID-19 period than before. This research will provide insights for regulators, specifically regulators in China, regarding the independent directors' composition and effectiveness.


selected Nigerian-listed companies. Investment Management and Financial Innovations, 13(2), 189–205.

Abdul Wahab, E. A., Jamaludin, M. F., Agustia, D., & Harymawan, I. (2020). Director Networks, Political Connections, and Earnings Quality in Malaysia. Management and Organization Review, 16(3), 687–724.

Agrawal, K., & Chatterjee, C. (2015). Earnings Management and Financial Distress: Evidence from India. Global Business Review, 16(5), 140–154.

Arora, P. (2018). Financially Linked Independent Directors and Bankruptcy Re-emergence: The Role of Director Effort. Journal of Management, 44(7), 2665–2689.

Bikhchandani, S., Hirshleifer, D., & Welch, I. (1998). Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades. Journal of Economic Perspectives, 12(3), 151–170.

Bisogno, M., & De Luca, R. (2015). Financial distress and earnings manipulation: Evidence from Italian SMEs. Journal of Accounting and Finance, 4(1), 42–51.

Burt, R. S. (1997). A note on social capital and network content. Social Networks, 19(4), 355–373.

Burt, R. S. (2004). Structural Holes and Good Ideas. American Journal of Sociology, 110(2), 349–399.

Chang, W., Yin, S., Yu, M., Teymurova, V., & Balabeyova, N. (2023). Impact of innovation on Corporate Social Responsibility: Evidence from China. Economic Analysis and Policy, 78(2), 1185–1194.

Charitou, A., Lambertides, N., & Trigeorgis, L. (2007a). Earnings Behaviour of Financially Distressed Firms: The Role of Institutional Ownership. Abacus, 43(3), 271–296.

Charitou, A., Lambertides, N., & Trigeorgis, L. (2007b). Managerial discretion in distressed firms. The British Accounting Review, 39(4), 323–346.

Chen, S., & Nie, Y. (2023). Director Network, Governance of Independent Directors and Efficiency of Enterprise Capital Allocation. Entrepreneurship Research Journal, 13(1), 163–184.

Chen, Y., Wang, Y., & Lin, L. (2014). Independent directors' board networks and controlling shareholders' tunneling behavior. China Journal of Accounting Research, 7(2), 101–118.

Choudhary, A., & Singh, V. (2020). Exploring the Impact of Corporate Social Responsibility on Poverty Reduction. In Corporate Social Responsibility and Environmental Management (Vol. 28, Issue 1, pp. 329–338). Wiley Online Library.

Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (2012). Detecting Earnings Management. In Asian Financial Statement Analysis (pp. 73–105). Wiley.

El-Khatib, R., Fogel, K., & Jandik, T. (2015). CEO network centrality and merger performance. Journal of Financial Economics, 116(2), 349–382.

Ellison, G., & Fudenberg, D. (1993). Rules of Thumb for Social Learning. Journal of Political Economy, 101(4), 612–643.

Ellison, G., & Fudenberg, D. (1995). Word-of-Mouth Communication and Social Learning. The Quarterly Journal of Economics, 110(1), 93–125.

Elzahar, H., Zalata, A., & Hassaan, M. (2022). Attributes of female directors and accruals-based earnings management. Cogent Business & Management, 9(1), 2139212.

Engelberg, J., Gao, P., & Parsons, C. A. (2013). The Price of a CEO's Rolodex. Review of Financial Studies, 26(1), 79–114.

Fang, M., Francis, B., Hasan, I., & Wu, Q. (2022). External social networks and earnings management. The British Accounting Review, 54(2), 101044.

Fogel, K., Jandik, T., & McCumber, W. R. (2018). CFO social capital and private debt. Journal of Corporate Finance, 52(1), 28–52.

Fracassi, C. (2017). Corporate Finance Policies and Social Networks. Management Science, 63(8), 2420–2438.

Fracassi, C., & Tate, G. (2012). External Networking and Internal Firm Governance. The Journal of Finance, 67(1), 153–194.

Godigbe, B. G., Chui, C. M., & Liu, C.-L. (2018). Directors network centrality and earnings quality. Applied Economics, 50(50), 5381–5400.

Griffina, P. A., Hong, H. A., Liu, Y., & Ryou, J. (2017). CEO Network Size and Earnings Management. European Financial Management Association Conference, 1–58.

Hanneman, R. A., & Riddle, M. (2005). Introduction to social network methods. University of California Riverside.

Healy, P. M., & Wahlen, J. M. (1999). A Review of the Earnings Management Literature and Its Implications for Standard Setting. Accounting Horizons, 13(4), 365–383.

Hirshleifer, D., & Teoh, S. H. (2003). Limited attention, information disclosure, and financial reporting. Journal of Accounting and Economics, 36(1–3), 337–386.

Jebran, K., & Chen, S. (2023). Can we learn lessons from the past? COVID‐19 crisis and corporate governance responses. International Journal of Finance & Economics, 28(1), 421–429.

Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197.

Larcker, D. F., So, E. C., & Wang, C. C. Y. (2013). Boardroom centrality and firm performance. Journal of Accounting and Economics, 55(2–3), 225–250.

Lieberman, M. B., & Asaba, S. (2006). Why Do Firms Imitate Each Other? Academy of Management Review, 31(2), 366–385.

Marano, V., Sauerwald, S., & Van Essen, M. (2022). The influence of culture on the relationship between women directors and corporate social performance. Journal of International Business Studies, 53(7), 1315–1342.

Marzi, G., Marrucci, A., Vianelli, D., & Ciappei, C. (2023). B2B digital platform adoption by SMEs and large firms: Pathways and pitfalls. Industrial Marketing Management, 114(1), 80–93.

Oktavia, O. (2020). Independent corporate governance organs' activities, tax avoidance, and country tax environment: Evidence from ASEAN countries. Pertanika Journal of Social Sciences and Humanities, 28(2), 1485–1505.

Omer, T. C., Shelley, M. K., & Tice, F. M. (2012). Do Well-Connected Directors Improve Firm Performance? SSRN Electronic Journal, 24(2), 17–32.

Omer, T. C., Shelley, M. K., & Tice, F. M. (2020). Do Director Networks Matter for Financial Reporting Quality? Evidence from Audit Committee Connectedness and Restatements. Management Science, 66(8), 3361–3388.

Purmono, D., Kasali, R., Widjaja, B., & Balgiah, T. E. (2018). How does personality affect employee engagement in change management? It depends on role of personal mastery and network centrality. Pertanika Journals. Social Sciences & Humanities, 26(5), 185–196.

Qiu, H. (2019). CEO network centrality and earnings management.

Ribeiro, F., & Colauto, R. D. (2016). The Relationship Between Board Interlocking and Income Smoothing Practices. Revista Contabilidade & Finanças, 27(70), 55–66.

Schipper, K. (2009). Earnings Management. In Encyclopedia of Business in Today's World (Vol. 3, Issue 4, pp. 1–91). SAGE Publications, Inc.

Shue, K. (2013). Executive Networks and Firm Policies: Evidence from the Random Assignment of MBA Peers. Review of Financial Studies, 26(6), 1401–1442.

Song, B., Chung, H., Kim, B.-J., & Sonu, C. H. (2023). Do business trainings for audit committees matter in organizations? Focusing on earnings management. Finance Research Letters, 51(1), 103–423.

Šušak, T. (2020). The effect of regulatory changes on relationship between earnings management and financial reporting timeliness: The case of COVID-19 pandemic. Zbornik Radova Ekonomskog Fakulteta u Rijeci: Časopis Za Ekonomsku Teoriju i Praksu/Proceedings of Rijeka Faculty of Economics: Journal of Economics and Business, 38(2), 453–473.

Thuy, C. T. M., Khuong, N. V., Canh, N. T., & Liem, N. T. (2021). Corporate Social Responsibility Disclosure and Financial Performance: The Mediating Role of Financial Statement Comparability. Sustainability, 13(18), 10–77.

Wu, Y., & Dong, B. (2021). The value of independent directors: Evidence from China. Emerging Markets Review, 49(1), 100763.

Yan, H., Liu, Z., Wang, H., Zhang, X., & Zheng, X. (2022). How does the COVID-19 affect earnings management: Empirical evidence from China. Research in International Business and Finance, 63(12), 101–772.

Yeh, Y., Chung, H., & Liu, C. (2011). Committee Independence and Financial Institution Performance during the 2007-08 Credit Crunch: Evidence from a Multi-country Study. Corporate Governance: An International Review, 19(5), 437–458.




How to Cite

Qi, R., Che Azmi, A., & Abdul Jalil, A. (2023). Impact of the Independent Directors’ Social Network on Earnings Management Before and During the COVID-19 Period. International Journal of Finance, Economics and Business, 2(3), 226–237.
Abstract viewed = 111 times