Majority Control, Private Placement And Earnings Management

Earnings management of listed companies has been the focus of academic research at home and abroad, and the behavior of earnings management in the process of refinancing equity is much more concerned about. In China, more than 80% listed companies are in the fact super-control of majority shareholder (by the end of 2009 statistical data), majority shareholders are rarely constrained by the other shareholders. In order to obtain more Control-self-interest, majority shareholders prefers to carry out earnings management in the course of refinancing equity, acquiring the qualification of the rights offering and public seasoned equity offering, and achieving the purpose of raising more money in the securities market and invading the interests from the minority shareholders. After the equity division reform, more and more listed companies show a strong preference to carry out the private equity placement (non-public seasoned equity placement) without minimum surplus-required, which is essentially the behavior of refinancing equity under the control of the majority shareholders. Thus, under the condition of the weakness external regulations poor internal governance and low-degreed protection of minority shareholders, majority shareholders have strong motivation to implement the behavior of earnings management in the process of the private equity placement, to transfer the wealth from minority shareholders.The paper conducts the theoretical analysis from the four aspects:the control features of majority shareholders, the motivation of the behavior of earnings management in the process of the private placement and the economic consequences. Conclusion is that majority shareholder has big powers to control the listed company, and has motivation to manage the earnings of the process of the private placement; as the same time, there is a positive correlation between the proportion of majority shareholder and the degree of earnings management and a negative correlation between the sum proportion of 2-5 shareholders; if the listed companies have the state-owned major shareholders, they may have more opportunities and conditions for implementation of earnings management, comparing with non-state companies,they take a deeper level of earnings management; lastly, the earnings management in the process of the private placement would result in great changes of performance.The paper takes listed companies from Shanghai and Shenzhen A-share stock market which have already implemented the private placement from 2006 to 2007 as a sample, conducts the empirical analysis from three aspects such as existence of the behavior of earnings management in the process of the private placement, how majority shareholder influence on the level of earnings management and what financial performance and market performance will be carried out. Then, the empirical analysis finds out:(1)There were obvious earnings management in the process of the private placement,and the higher the proportion of majority shareholders were, the higher the level of the earnings management was, it reveals that the majority shareholders have the motivation and ability to implement the earnings management; (2)There was a non-significant negative correlation between the proportion of the big 2-5 shareholders, indicating that the majority shareholders just bear a little pressure from other shareholders and the low-ownership-restriction; when the listed companies have state-owned shareholders, the level of earnings management are slight higher than the listed companies without state-owned shareholders, indicating that the state-owned shareholder don't show stronger motivation to implement earnings management; (3) According to the different directions of earnings management, the paper divide the full sample to the two different group-positive earnings management group and negative earnings management group. The empirical analysis shows that:for the positive earnings management group, there is a significant reduction of financial performance after the issuance and a non-significant negative correlation between the market performance and the degree of earnings management, it reveals that earnings that being managed before have been "rushed-back" in a certain degree and range, resulting in resulting in a significant "mask-off of the financial performance of the listed companies and a non- significant deterioration of market performance; for negative earnings management group, there is a little rise of financial performance after the issuance and a non-significant positive correlation between the market performance and the degree of earnings management, it reveals that earnings that being managed before have been 'filling-back" in a certain degree and range, leading to a small increasing of the performance of the listed companies.The main content of paper is as follows:the first part is the introduction, describing the research background, research significance, research ideas and methods,and so on; the second part is the literature review, reviewing the literature related to the motivations of earnings management, the features of majority shareholder's control, and the economic consequences of earnings management at home and abroad; the third part is the theoretical analysis, then putting forward the paper's hypothesis; the fourth part is the focus of the paper, having empirical studied the earnings management of the majority shareholders in the process of the private equity placement. As to the hypothesis, proving the existence of earnings management firstly, then making an empirical analysis to find what the relations are between the majority shareholder and the level of earnings management, and analyzing the economic consequences have been carried out by the earnings management; the fifth is the conclusions and revelations.