Equity Checks And Balances Affect The Reliability Of Business Accounting To Accrual?

Previous researches find out that related party transactions(RPTs) can be either a "Tunneling" method used by block shareholder or optimal arrangement in order to reduce transaction cost.This paper attempts to prove that counter-balance towards the largest shareholder can improve the reliability of accruals,by reducing the amount or the possibility of RPTs carried out with "Tunneling" purpose.Basing on research of Richardson,Sloan,Soliman and Tuna(2005),this paper measures the reliability of accruals as a function of its measurement error,and argues that the reliability of two kinds of accruals with different purpose is different.Basing on hand-collected data of all manufacturing companies listed in Shanghai and Shenzhen Stock Exchange,this paper tries to answer the following two questions:(1) Compared with the reliability of regular accruals,is that of related party accruals(RPAs) higher or lower?(2) As an effective way to improve corporate governance,can counter-balance towards the largest shareholder improve the reliability of related party accruals(RPAs)?For the first problem,this paper discovers that the reliability of related party accruals(RPAs) is lower than that of regular accruals.This phenomenon is caused solely because that the reliability of accruals treated with the largest shareholder group is low,and has nothing to do with the rest part of RPAs.After finding the driven factor of low reliability of related party accruals,this paper focuses on the second question.The evidence shows that counter-balance does improve the reliability of accruals traded with the largest shareholder group, and only through this effect,does counter balance improve the reliability of RPAs as a whole.Finally,the reliability of working capital accruals increases as a result.