| With the acceleration of registration system reform,perfect information disclosure system is becoming the cornerstone and soul of capital market.Equity pledge financing could easily lead to financial risk and systemic risk,which has aroused attention and discussion by supervisors and scholars.Based on China’s capital market,this research attempts to explore the influence mechanism of controlling shareholders’ share pledge on managerial entrenchment and accounting information disclosure quality,from the perspective of accounting residual control right especially.From the view of incomplete contract theory,this research first analyzes the process of interactive game between controlling shareholders,who pledged their stock rights,and managers through the incompleteness of contracts.In this process,the two parties need to balance their risks and revenues to achieve partial equilibrium,which is related to allocation of residual control right,and the economic benefits produced by residual control right does influence its accounting disclosure quality.Moreover,this research also proves that share pledge by controlling shareholders aggravates managerial entrenchment,in both behavior and motivation,therefore managers are prone to abuse residual right,which might harm accounting disclosure quality,reducing the stock price informativeness,as a result,no one could get useful information or benefit from such an inefficient market.Using a sample of China’s A-share listed firms in from of 2000 to 2020,this paper empirically tests share pledge’s influence mechanism on the quality of accounting information disclosure by multiple regression method.And our findings and conclusions are as follow:firstly,share pledge of controlling shareholders significantly reduces accounting information disclosure quality.Evidence also shows that controlling shareholder who pledged their equity are prone to collude with managers via reducing the sensitivity of managers’compensation and manipulating the abnormal change of executives,those actions might stimulate managerial entrenchment,producing a negative effect on accounting disclosure quality.To ensure the robustness of the findings,series robustness tests are performed in terms of the replacement of proxy variables,sample time interval,instrumental variables,and Time-varying PSM-DID method is employed to make regression again and be empirically with the same conclusion.Our study contributes to the literature in the following ways:First,based on the view of incomplete contract theory,this paper reveals some important concepts related to residual control right,such as connotation,source,allocatee,and defines"Public Sphere" on the context of new accounting standards.Meanwhile this work analyzes the initial allocation of accounting residual control rights between the controlling shareholders and the management,their game process and how it influences accounting information disclosure quality.In comparison,the existing literature extensively studies the economic consequences of accounting policy choices or changes,seldom pay attention to the internal allocation of residual right and test its relevance,this research matches this gap.To our best knowledge,this is the first paper to study the role of residual right allocation in accounting information disclosure on the view of incompleteness of accounting contract,to make it more vivid,the "Public sphere" formed by accounting rules and policies is the ’Stage’,whereas people with residual control of accounting is the "Actor".The actor’s overperformance on the stage is regarded as the abuses of the residual control right harm accounting information disclosure quality.Besides,this research expounds that the residual control right of accounting is a tool and system arrangement for interest groups such as shareholders,board of directors and managers to realize self-interest goal.Hereby,the equilibrium process in which controlling shareholders and managers competing for residual control rights are analyzed through Rubin-stein model,in this research,three types of incomplete information are introduced,results showing that manager’s human capital value is positive to their residual control right share.Secondly,this research explores the influence of controlling shareholders and managers’interactive relationship on accounting information disclosure quality.Generally,financing activities by controlling shareholders through share pledge are considered "Negative" news,which would lead to more attention from the market and external supervisor.In order to release this pressure,controlling shareholders take advantage of control power through appraisal of management’s performance,deciding their salary,doing supervision even dismissing to game with the management’s residual control power.To realize mutual benefit,managers tend to manipulate accounting information disclosure,as a result,getting a so called stabilize or boost the stock price,or to utilize related party transactions,transfer pricing,acquisition of notperforming assets or other ways to ease capital constraints.These kinds of opportunistic behaviors of the controlling shareholders harm firms’ performance,which inevitably leads to additional compensation for the managers,and reduces the sensitivity of the performance compensation and the quality of the accounting information disclosure.However,there is no existing researches study the impact and interaction of pledged controlling shareholders on managers’ financial decision-making.Our research enriches this area empirically and theoretically,showing that,share pledge makes managers significantly increase their defensive level,and decrease their sensitivity of pay,along with soaring managers turnover rate and legion tunneling behaviors of controlling shareholders.Thirdly,this research redefines the connotation and characteristics of accounting information disclosure quality based on accounting residual control right,and reveals the relationship among managerial entrenchment,accounting residual control right and accounting information disclosure quality.Compared to previous managerial entrenchment studies which pay little attention to pre-factors,path of conduction mechanism and the way of influence.This research starts from the essence of quality connotation and ’Accounting Disclosure Process’.Here,the quality characteristics of accounting information disclosure are divided into two stages:information generation stage and disclosure stage,assuming that managers have the motivation and ability to excessively use accounting residual control rights for personal benefits,even that might harm firm’s benefits,affect the quality of accounting information and manipulates the tone of accounting text.Empirical findings show that with the development of managerial entrenchment,the use of residual control rights is increasing,contrarily,financial disclosure quality is decreasing through earnings management.This conclusion is proven by context analysis carried out by Python with a negative relation between managerial entrenchment and readability of financial reports.Fourth,the research systematically explains the mechanism and path of which,pledge of controlling shareholder’s equity influence both managerial entrenchment and accounting information disclosure quality.Compared to this research,previous researches focus on controlling shareholder’s motivation,its economic consequences and governance,however such kinds of‘Behavior-result’research could not find feasible countermeasures.And our research makes it possible.Based on China’s capital market,this research analyzes the elastic space of accounting standards and the measurement of the using accounting residual control right;it also empirically verifies the negative correlation between abuse accounting residual control and financial disclosure quality,when controlling shareholders pledge their equity.Moreover,managers also tend to postpone disclosure or disclose on non-trading days to eliminate potential risks;in addition,pledge of controlling shareholder’s equity would reduce the sensitivity of management’s compensation,depress the supervision of management,and enhance managerial entrenchment,under the moderation of share pledge and firm operation performance.Furthermore,this research also finds that the abnormal change of the executive after share pledge by controlling shareholder exacerbated ’Tunneling’.In conclusion,this research reveals the mechanism and specific path of controlling shareholder’s Equity Pledge’s influence on the quality of accounting information disclosure;proved that allocation of residual control rights is the result of a partial equilibrium achieved by the game among controlling shareholders and managers,and its outcome does influence accounting information disclosure quality.Overall,this research provides a new way to improve the quality of accounting information disclosure of listed companies. |
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