The Effect Of Governance Structure On The Earnings Quality: An Empirical Study

In recent years, the relationship between corporate governance structure and the quality of accounting information has been widespreadly concerned, and earnings is the most important and comprehensive accounting information. So it is essential to conduct a study on the relation between corporate governance structure and earnings quality. Ownership structure and board structure, as the most important corporate governance mechanisms, will bring about what kind of impact on earnings quality? The general idea of this paper is to research these questions empirically.On basis of the principal-agent theory, information asymmetry theory, combining the research method and conclusion of former literature and the special research background in China, this paper develops our hypotheses and conducts a research on the influence on earnings quality respectively from management prompting, controlling owners, ownership equity and characteristic of board of directorate.This paper examines the relationship between corporate governance structure and earnings quality, which is measured by the earnings-return relation .An association study is used in the empirical study of 5,248 sample companies, which was selected from the listed companies for five years. We found that it can improve the earnings quality if we give the administrators more shares, and through further study we discover that this relationship is still existed under dispersion of ownership, however, it is not existed under high concentration of ownership. Controlling owners'equity ratio and earnings informativeness of the listed companies have the the inverted-U relationship; the study also found that the listed companies controlled by the private entities, labor unions and social groups is associated with higher earnings quality than the state-owned-enterprise. Particularly, the listed companies controlled by SOEs affiliated to the the central government has more positive effect on earnings-return relation than the other listed companies controlled by the local government. The listed companies controlled by the local government, the State-owned Assets Supervision and Administration commission of Province Council directly has the highest earnings-return relation, followed by state-owned asset management companies controlled, controlled by the local SOEs is associated with the lowest earnings informativeness. The supervision capability of outside shareholders has negative correlation with the earnings quality.The separation of powers between chairman of the Board and CEO, Audit Board have not play a prominent role in improving earnings quality.Board size has negative correlation with the earnings quality,but independent directors have positive correlation with the earnings quality. The numbers of the formal Board Meeting have positive correlation with the earnings quality, but the numbers of the temporary Board Meeting have inverse effect. Board'equity ratio have positive correlation with the earnings quality. The change of Chairman of Board and CEO has negative correlation with the earnings quality. Finally, this paper gives some policy and further research proposals.