Measurement of Management Demography

486 Fama 1980 argues that the directors on the board should be effective monitors and are important governance mechanisms as they have their reputation at stake in the director labor market. One of the functions of the board of directors is to oversee firm management. A good-governed board represents a good internal corporate governance mechanism and hence would be expected to have a high quality external monitoring agent auditor to oversee the firm‘s financial reporting process. We include board size BoardSize, independent director ratio IndDirRatio, and percentage of directors‘ shareholding DirHolding as the corporate governance factors in our model. DirHolding is the ownership percentage of all directors on board. Agency theory suggests that awarding firm shares to top managers can help reduce conflict of interests between managers and shareholders Jensen and Meckling 1976. Therefore, the percentage of directors‘ shareholding is related to standard of corporate governance, and hence the choice of auditor. In addition, Warfield, Wild and Wild 1995 argue that the percentage of managerial ownership is an important factor of discretionary accruals and find a negative relation between managerial ownership and accruals. Firm Financial Measures We include several financial measures EPS, DA, MB and LnAsset of firms in our model as control variables. EPS is earnings per share. DA is debt to asset ratio which is a measure of firm risk. Information asymmetry is positively related to firm risk. MB is ratio of market value to book value of equity. LnAsset is log of total assets which is a measure of firm size. Firm Demographic Characteristics We have three firm demographic characteristics ForeignD, NonSOED and Develop in our model. The financial statements of firms with foreign investors B- shares r H-shares have to be prepared according to International Accounting