An Empirical Research On The Ultimate Controllers, Related-Party Transactions And Earnings Quality

The validity of earning information depends on earnings quality.Earnings quality is different obviously in the listed company in China. Because of inadequate corporate governance structure and unsound monitoring system, corporate behavior often lost equity and efficiency, and emptied phenomenon is noticeable in ultimate controllers. However, with the implementation of split share structure reform and new accounting standards, supportive behavior has become a focal point in ultimate controllers. Whether it is emptied or support, they are all reflected in related transactions between ultimate controllers and listed companies. Related-party transactions are connected to earnings quality and ultimate controllers. This paper explores this proposition, perspectives the intrinsic link among ultimate controllers, related-party transactions, and earnings quality through theoretical analysis and empirical data. Conclusion of the study provides new empirical evidence in encouraging earnings quality of listed companies and promoting information supervisory capability of regulators.This article focuses on the symbiosis theory and the signaling theory to analysis the behavior of ultimate controllers, describes that the ultimate controllers driven by different interests are both occupied side, but also support side, so they will have different effects to accounting earnings by use of related-party transactions. Then, the paper analyze the relationship among ultimate controllers, related-party transactions and earnings quality using listed company data in 2006 and 2007 by empirical research methods. The empirical results show that ultimate controllers use unusual related-party transactions to reduce the earnings quality by favoring private benefits in 2006, but ultimate controllers use normal transactions to improve earnings quality by favoring benefits sharing in 2007. Normative effects of related-party transactions are gradually emerging with institutional changes of split share structure reform and new accounting standards.Finally, the paper proposes to improve the earnings quality of listed companies based on the theoretical and empirical analysis and specific issues of the listed companies in China.