Research On The Relationship Between Ownership Structure And Earnings Quality Under The Context Of The Nontradable Shares Reform

Accounting information, particularly accounting earnings information is an important factor for investors outside of listed companies to make decisions. In order to meet the requirements of usefulness, earnings information must meet certain quality requirements. If there are some serious quality problems, then will lead outside investors make wrong decisions and injure their economic interests. Earnings Quality is affected by many factors, academic researches have found that among these factors, ownership structure is a very important factor. The differences of ownership concentration and the nature of the controlling shareholders of listed companies will produce different qualities of earnings. Therefore, correctly defining the meaning of earnings quality and analyzing the relationship between ownership structure and earnings quality will have very important theoretical and practical significances.By 2005, China's capital market had many serious systematic deficiencies in the design:man-made share split structure created the special formation of ownership structure. The majority of controlling shareholders'shares couldn't be transacted in market; they were not sensitive to the changes of the stock prices and lacked the common interest's bases with tradable shareholders, resulting in a particular phenomenon in China's capital market:"The same shares with different prices and different rights". Controlling shareholders thus made use of their special statuses and control powers to manage earnings and venerated earnings quality. May 2005 started the Nontradable Shares Reform, has brought many new changes:Nontradable Shares Reform aimed at changing our unique ownership structure, through non-tradable shareholders paying compensations to the tradable shares, enable non-tradable shares to obtain the right to trade and fundamentally block non-tradable shareholders with unfair ways to manage earnings. Now Nontradable Shares Reform has already completed, will the ownership structure of listed companies in China have some changes? Whether these changes will help improve the quality of earnings of listed companies? This paper will study the relationship between ownership structure and earnings quality based on the setting of Nontradable Shares Reform.This paper uses both methods of standardized research and empirical research to begin a research on the relationship between ownership structure and earnings quality under the context of Nontradable Shares Reform. Firstly, this paper introduces the background and significance,methods and thinking,structure of research and main innovations; Then summarize and review the existing literatures from home and abroad; on this basis, analyze the mechanism impact of ownership structure on earnings quality. Then regards China's A-share listed companies among 2004-2007 year's data as sample and carries on empirical analysis, results show:(1)From the point of view of ownership concentration, the equity ratio of the largest shareholder in listed companies of China are negatively correlated with earnings quality, namely, the higher the proportion of the largest shareholder, the lower the earnings quality. (2)From the point of view of equity properties, listed companies with state-owned shareholders will have lower earnings quality; its state-owned nature will lead to lower earnings quality.(3)Nontradable Shares Reform has reduced the degree of ownership concentration of listed companies, weakened the extent which controlling shareholder made use of special powers to influence the earnings quality. At the same time, the feature of "state-owned" will gradually not to be an important factor which affects the quality of earnings. Earnings quality of state-owned listed companies has been significantly improved. The determinants of earnings quality will gradually eliminate the impact of equity properties. Finally, this paper proposes some beneficial recommendations to enhance earnings quality.The innovation of this paper is that through selecting a particular research perspective of Nontradable Shares Reform to begin a research on the relationship between ownership structure and earnings quality. Through empirical analysis, this paper results in that Nontradable Shares Reform has reduced the degree of ownership concentration, changed the driving mechanism of interests of the state-owned shareholders and improved earnings quality of listed company.