An Empirical Analysis On Controlling Shareholder, The Board Of Directors And Earnings Quality

The accounting information of listed company, especially the earning information is the basis on which all kinds of investors of the stock market do an investment decision, as well as the basis on which government and other sections carry on their control. But, for long time, the accounting information distortion of the listed company which perplex the stock market will not only mislead most of the investors and make them suffer severe economic lose, but also in the meantime injure the prestige of the listed company, and seriously influence the healthy development of our country stock market. Our stock market appeared significant keep on a slump from the second half of 2001.The investors suffered a lot during that period, so the investors also becomes gradually reasonableness. The quality of the accounting information which the listed companies disclose, especially the quality of the earning is subjected to unprecedented concern. Therefore, the research of the quality of the earning has the realistic meaning of very importance.This paper is made use of Earnings Response Coefficients to verify the effect of the largest shareholder, state holding company and non-state holding company, local government holding company and central government holding company on the quality of the earning. Considering that the board of directors which combines shareholders and managers, is placed in a vital point position of the governance structure, and it may lower the degree of the earning management of the managers, this text also made use of Earnings Response Coefficients to investigate the scale of board of directors, the number of the independent board director, and the quality of the earning whose independent board director is bigger than 1/3. This test is the quest of the impact factors of the earnings quality, also it is the quest of shareholders'effect on the performance, the board of directors and earnings management.At the theories field, for the research of the concentration of the ownership of the share, there are two kinds of contrary standpoints, "Expropriation" and "the benefits tend together". But at our country, the state-owned listed company faces two problems, namely policy burden and the "lack" of a shareholder. Because of the decentralization of the administration power, during the process from the planned economy to the market economy, the government power allocation experienced the centralization to decentralization of the power and the local government acquired the independent public finance power, economy management power in this process. The result of the decentralization of the administration power is that the local governments have the aggressive motive to develop the local economies, in the meantime, the local government have the motive to compete the resources. However, it makes the role of the central government seem like a client, and the role of local government be similar at an agent, in other words the result of the decentralization of the administration power was to enlarge the problem of the control chain, so compared with the central government, local governments are more easily to injure the benefits of the small shareholders and have motive as well as have the ability to influence the quality of the earning and obtain from it the unexpected income.Combined with the theories analysis, this text puts forward six assumptions. According to the definition of the independent variables and the dependent variables, we make use of the Earnings Response Coefficients to verify the relation between dependent variable and the quality of the earning, we draw the following conclusions:The biggest shareholder's holding have the distinct influence on the quality of the earning. The higher control power rose authentic commitment and moderate a stronger effect, it exceeded the negative influence on the earning information brought along by the barracks effect and information effect. With the incremental of the share, the control power of the shareholder grow larger, the benefits of the shareholders and the benefits of the company are tend in a homology. And it will have effective function on the charge of the management and lower the degree that the management manipulates the earning.IF the company is the state-owned company, the Earnings Response Coefficients is negative, which is in accordance with our assumptions. It means that for the state-owned listed company, the national end control increased excessive social burden for business enterprise, and the business enterprise management lacks independence which lowered the company's performance. The influence of the government and the government behavior behind the listed company make it very difficult for the earning to really reflect the operation of listed company. On the other hand, because of the "lack" of a shareholder for the state-owned listed company, the property right is not clear, the share don't circulate, all of these make the agency problem worsen and influence earning quality thus.In the state-owned listed company, if the local government controls the company, the Earnings Response Coefficients is negative on 10% levels. It means that the local government has stronger motive than the central government on competing the share market resource. On the other hand, because of in the all levels local government, top and bottom of the class government exists the similarly entrust to act for a relation, for the descend class government, the upper grade government may even control the behavior of oneself and notice the image of oneself. Thus, the descend class government may violate the benefit the small shareholders more seriously. Meanwhile it will manage the earning to cover up this kind of behavior and thus it will influence the earning quality.For the relation of the board of director scale and the earning quality, this text gets the conclusion that they are correlated on 10% levels. It means that under our special business enterprise circumstance, the board of director scale is bigger, the more harmoniously effect, the less management behavior, the higher the earning quality. The more board of director member will bring more knowledge and experience for the board of directors and make board of director inner part of knowledge and experience exertive more. The board of directors having different benefit deputy is advantageous to coordinate the different benefits. It supports the first standpoint in the theories analysis in this text.Similar to the result of most researches, the number of the independent board director and earning quality are not correlated. It means that it is very recently to lead into independent board director's system in our country, the independence of the independent board director is also questionable. The independent board director can't carries on direct and evaluates the behavior of manages on a fair position, they are not beneficial in repress and guard against the management behavior of the manager, thus they don't have the influence on the earning quality.In consideration of our country system in 2001, the independent board director before June 30, 2003 had to attain 1/3, it may urge to living a kind of special economic phenomenon that the independent board director which exceeded 1/3, would have higher quality financial information, in the regression analysis, we get the contrary result. As for this result, this text gives two kinds of possible explanations. The company which independent board director is more than 1/3 is few, most of them is 3/8 and 3/7. Because the independent board director has to be more than 1/3, companies whose board director number is 8 or 7 must have 3 independence board directors. Then it means that a business enterprise increase the independent board director just for attaining an institutional request, which makes independent board director's system become formalistic. On the other hand, these so-called "independent board director" are mostly appointed by the top management by the social relation. They can't represent all the proper benefits of the shareholder, contrary they crowd the board director's quota of medium small shareholder, and violated further the legal rights of small shareholder, thus it brings about disadvantageous influence on earning quality.