An Empirical Research On The Effect Of Corporate Governance On Earnings Management

In these years, the listed companies'financial scandals were broken out all over the world, such as Enron, WorldCom, Lantian, Zhengbaiwen and other financial frauds. Quality of information disclosure of listed companies were drawn more and more attention. Earnings management, as the primary means to Manipulate of earnings and provide false financial information, has become a hot spot both theoretically and practically. To some extent, earnings management increasing agency costs between the owners and operators, has seriously affected the quality of accounting information and has harmed the interests of investors. Therefore, in order to improve the quality of information disclosure of listed companies and to maintain the normal order of the capital market, it is necessary to do empirical research on the constraints of earnings management. From the institutional perspective, the constraints of earnings management include the accounting system and corporate governance. Accounting system is rigid and more stable, usually remains the same during a long time. In addition, Accounting system playing the role of inhibiting earnings management depends on the company's regular internal controls and the sound corporate governance system. Therefore, the establishment of sound corporate governance system is an important way to constrain earnings management and improve the quality of accounting information. Domestic companies'corporate governance transplants from Western countries. According to the foreign related research, foreign companies'corporate governance system plays an important role in ensuring the smooth operation of internal control and constraining earnings management, which has enhanced the Quality of accounting information, According to the domestic related research, whether corporate governance of listed companies has played some role at this stage, has yet to practice. Separation of ownership and operating rights is a significant feature of corporate enterprise, it produces agent cost and asymmetric information between the owners and operators. Earnings management and corporate governance are both based on the principal agent problem. The research of earnings management belongs to accounting research areas, which mainly disclose the intervention of generation process of the financial report. Corporate governance is a relatively complex concept, also belongs to economics, finance, accounting and other research areas. Corporate governance, simply, is a series of institutional arrangements and mechanisms to regulate the rights, responsibilities and benefits of related parties. Corporate governance includes external and internal corporate governance. External governance mainly includes product markets, managers markets and capital markets. External corporate governance is under the precondition of efficient capital markets. In view of the domestic capital market invalid , It is internal corporate governance play the main role in improving the quality of accounting information. This paper mainly researches the impact of internal corporate governance of listed companies on earnings management, in order to test whether the internal corporate governance of listed companies plays fully effectively.The thesis adopts academic and experimental ways. The main part of the paper consist of Chapter Two, Chapter Three, Chapter Four. In Chapter Two, the thesis first reviews the related domestic and foreign literature of earnings management and corporate governance, from many perspectives, analysing the causes of earnings management and corporate governance. Then to make the system summarized on the motivation of earnings management. Finally, to analyse the impact of the internal corporate governance on earnings management. From four respects of the ownership structure, board characteristics, characteristics of the board of supervisors, managers, the thesis put forward the hypothesis of this paper: the relationship between the proportion of the largest shareholder and earnings management is positive; the relationship between executive compensation and earnings management are positive; the number of directors and earnings management are negatively correlated; the proportion of independent directors and earnings management are negatively correlated; The number of board of Supervisors'meetings and earnings management are negatively correlated; the relationship between executive ownership and earnings management is negative . Chapter There is the design of the research. This part first defines that the research method is academic and experimental. Then the measurement method and measurement model of earnings management that are adopted in this paper are defined. Because earnings management can not be observed directly, which need to use a certain method, and to take a specific measurement model to measure up. The measurement methods and measurement model of earnings management have a direct impact on the results of empirical research, so this paper summarizes and weigh the measurement methods and measurement model of earnings management. Based on the previous academic research, there are mainly three types of measurement methods of earnings management: the method of total profit accrued, the method of specific profit accrued, the method of detecting distribution of earnings management, in which the method of total profit accrued is most appropriate for this thesis. With regard to the total accruals method, the non-discretionary accruals profits can be measured, the difference between the two is the part of accruals which in control, which is substitution variable of earnings management. The total accruals method includes eight specific models: Healy Model(1985), DeAngelo Model(1994), Jones Model(1991),Modified Jones Model (Dechow, Sloan and Sweeney, 1995), Industry Model (Dechow, Sloan and Sweeney, 1995), Section Jones Model (Defond and Jiambalvo, 1994), Section &Modified Jones Model (Defond and Jiambalvo, 1994), Expanding Jones Model (Lujianqiao, 1999). According to our current capital market and the demand of this thesis, Section & Expanding Jones Model is adopted. Finally, this Chapter describes the scope of research sample , A-share listed companies of Chinese stocks market including Shanghai and Shenzhen in 2008, removing that does not meet the requirements, following the part of the empirical analysis. There are two linear regressions in Chapter Four. The first linear regression is to put the data of sample into Section & Expanding Jones Model, to count the earnings management variable. The second linear regression is to test the effect of the internal corporate governance variables on earnings management, the results show that: the proportion of the largest shareholder and earnings management is a significant positive correlated; executive compensation and earnings management is a significant positive correlated; the size of Board of Supervisors and earnings management is a significant positive correlated; directors and earnings management is negative correlated, but the correlation is not significant; proportion of independent directors and earnings management is weak negative correlated; the number of Board of Supervisors'meetings and earnings management is negatively correlated, but the correlation does not reach the significance level; executive ownership and earnings management is also weak negative correlated. The thesis draws some conclusions: the effect of corporate governance of listed companies on earnings management has yet played fully effectively, corporate governance of domestic listed companies is in the gradually improved stage. Finally, the thesis puts forward some relevant recommendations.