Independent directors’ auditing experience and financial misstatements: evidence from Taiwan

Purpose This study aims to examine the association between independent directors with experience as audit partners and financial misstatements, and extend the discussion by investigating whether the source of their auditing experience (e.g. auditing public or private clients) differentially influences financial misstatements. Design/methodology/approach Using a sample of Taiwanese public firms from 2006 to 2022, the authors use conditional (fixed-effects) logistic regressions to test the hypotheses. To ensure the robustness of the findings and address potential endogeneity, the authors further use (Heckman’s 1979) two-stage approach, propensity score matching and two-stage instrumental variable regressions. Findings The authors find that firms with audit-partner independent directors are negatively associated with financial misstatements. The results also show that experience in auditing public clients is negatively associated with financial misstatements, whereas experience in auditing private clients is not. Originality/value These findings suggest that having experience in auditing financial statements that present accounting issues comparable to those raised by public companies’ financial statements can improve independent directors’ ability to monitor the financial reporting process.