Ultimate Control Over The Right To Cash Flow And Earnings Quality Empirical Research

Since the middle 1990s, the researchers find that the agency problem between controlling shareholders and the middle-small shareholders begins to become Prominent. The separation of cash flow rights and ultimate control rights is easily to become the main tool by which the controlling shareholder misappropriate the benefits of middle-small shareholders. Then, controlling shareholders probably manipulate the corporats'earning information for their misappropriation which indirectly influence the quality of the corporates' earning.The statistics indicate that with the development of the privatization, more and more private listed enterprises emerged in China in recent years. And the separation of ultimate control rights and cash flow rights is very popular in the Chinese private listed enterprises, particularly in the pyramidal structure enterprises. The legal protection in our country to the minority shareholders is poor, it is very important for us to research the private listed enterprises which are in a situation that the cash flow rights and ultimate control rights are separated. Therefore, it is necessary for us to make an analysis of this problem theoretically and practically so as to reasonable advice to middle-small shareholders.Firstly, basing on the introduction of the basic theory, this paper make an analysis of the 267 selected private listed enterprises of pyramid ownership from the point of the agency Problem between controlling shareholders and the middle-small shareholders. Then, because of the separation between cash flow rights and ultimate control rights is very popular in private listed enterprises of pyramid ownership, I analysis of the probably effect that it may create to the earnings quality. At last, using the model containing earnings response coefficient for testing the quality of corporates'earning. The results of the empirical analysis indicate that, ultimate control rights(cash flow rights) of private listed enterprises and earnings quality show a kind of significant positive correlation; The separation between cash flow rights and ultimate control rights and earnings quality show a kind of significant negative correlation. And if make a further study by subdividing the ultimate control rights, I find that the separation between cash flow rights and ultimate control rights and earnings quality show a kind of insignificant positive correlation under the relative control, while show a kind of significant positive correlation under the absolute control. Moreover, the results of sub-samples also show that the ultimate controlling shareholders'cash flow rights are significantly associated with higher earnings quality at absolute control level, and the correlativity is insignificant at relative control level. Finally, the study proposes corresponding policies on the basis of empirical research. At the same time, conclusion and summary of the full text were made.