The Correlation Studies Between Tunneling From Major Shareholder And Earnings Management

Listed company is an important part of the capital market, its overall quality is the foundation and guarantee of the healthy development of the capital market. After more than ten years’development, the quality of the listed companies has been significantly improved, competition also increases ceaselessly. They made great contribution to the development of China’s capital market.However, China’s listed companies themselves have many problems, including Unreasonable corporate governance mechanism,the tunneling of large shareholders,earnings management these problems seriously affect the listed companies’business activities, damage the interests of middle and small investors. This paper studies correlation between the tunneling of large shareholders in three ways (provide security for large shareholders, occupy the funds of the listed company, Affiliated transaction) and earnings management,so as to effectively curb the shareholders of listed companies, to protect the interests of meddle and small investors, maintain a healthy and orderly capital market development and provide some information.In China, Affiliated transactions are common in listed company’s daily activities, and the frequency and scale showed a rising trend. Affiliated transaction is generated, the initial reason of the generation of Affiliated transaction is to meet the company’s potential economic need and reduce transaction cost and risk management.But because of affiliated transactions’great complexity an invisibility, after affiliated transactions the enterprise is likely to use the earnings management to cover up. Similarly, in order to meet the needs of their own interests, large shareholders will often use the name of the listed company to provide security, or occupy the fund of the listed company.As we know, the listed company has delisting risk, in order to ensure that the shareholders can continuely interest from the listed company profits, shareholders will use earnings management to whitewash performance.This paper consists of five chapters. The first part is about the analysis of the research background and significance. The second part is the literature review, by reading the relevant documents at home and abroad, this part mainly consists of three aspects. First is literature review about Tunneling from Major Shareholder; the second is literature review about the earnings management; the last the relation review. The third part is about theory analysis, also from three aspects.The fourth part is the empirical part, we choose A shares of the manufacturing industry as the sample, three hypotheses were proposed. Hypothesis1:the more the major shareholders of listed companies take up money, the more earnings management is taken. Hypothesis2:Occupying the funds of listed company and earnings management is positively correlated.Hypothesis3:Affiliated transaction and earnings management positively correlated. We select The natural logarithm of assets, rate of return on net assets, operating income growth rate and the ratio of audit fee as control variable. Finally, the empirical research proves all there hypothesis.The fifth part mainly puts forward the conclusion of this paper,and then put forward some reference.Including strengthen market supervision, strengthen the protection of minority investors and so on.Principal-agent theory is the theory source of large shareholder tunneling. The principal-agent theory is about how to effectively design the relationship between principal and agent in order to reduce the agent cost. The basic form of modern enterprise is the company system enterprises, it can be divided into two types. One type is limited by the shares, the other is limited by liability company. The enterprise is funded by many shareholders, the management decision-making power is concentrated in the hands of the large stockers. As we all know. economics assumes that people are rational economic men, the managers and shareholders are different in the interests,so resulting in the principal-agent relationship.The managers understand the real operation condition of the enterprise, they also need to be responsible to the board.The existence of independent directors don’t really maintain their independence, so the large shareholders of the company have access to get the information in order to encroach on the interests of investors.In the pursuit of maximizing their own interests, major shareholders are likely to be against the interests of all shareholders. In this condition, large shareholders and small shareholders profit risk varies:big shareholders enjoy most of the benefits but bear a small risk.but the other investors is opposite.Earnings management and agency theory show that, accounting earnings plays a very important role in the agency relationship. As knowing the enterprise information most, management in order to seek the biggest interest, they will take strong earnings management behavior. Management takes corresponding earnings management behavior, through the influence of accounting earnings to affect the distribution of interests, ultimately to achieve their goals. In signal theory, management often choose this way:management transmit valuable inside information to stakeholders to achieve the win-win situation; but if there is adverse internal information, management chose to cover up, at the expense of stakeholders’interests This" communication block" provide opportunity to management for their earnings management. Transaction cost theory suggests that, if by professional division of labor and cooperation can save a lot of transaction costs, information costs, and thus improve the working efficiency of the enterprises, then the enterprises have the motivation to take earnings management.The existence of related transaction is due to the imperfect of rights protection mechanism. Related transactions have the feature of the subject of the transaction complexity and so on.All these provide the listed companies a more favorable means of earnings management.In the empirical part, we analyzed the controlling shareholders and earnings management data by descriptive statistics.we multiple linear regression, and then find the relationship about these variaties. As the collection of data limitations, we choose2009-2010listed companies in manufacturing industry to research and analysis. Data comes from CSMAR databases and manual collection. we choose A shares of the manufacturing industry as the sample, three hypotheses were proposed. Hypothesis1:the more the major shareholders of listed companies take up money, the more earnings management is taken. Hypothesis2:Occupying the funds of listed company and earnings management is positively correlated. Hypothesis3:Affiliated transaction and earnings management is positively correlated. We select the natural logarithm of assets. rate of return on net assets, operating income growth rate and the ratio of audit fee as control variable. Finally, the empirical research proves all there hypothesis. According to the conclusion we put forward some opinions for reference.(1) Promoting financial market process.(2) Improve the quality of information disclosure of listed companies to improve the transparency of information.(3) Improve the equity incentives of listed companies (4) Strengthen market supervision, strengthens the protection of minority investors.(5) Perfect the CPA auditing system.(6) Increase the focus behavior of the largest shareholder.The contribution of this paper and is:(1) Through the contract theory and the large shareholder tunneling behavior analysis, the earnings management and tunneling of large shareholders are related together. large shareholders have the motivation to earnings management after The tunneling,one reason is to hold the qualifications of being listed, the second is to maintain the company’s image. Contract theory tells us, in order to maximize their profits, major shareholders and the management will usually use earnings management means to achieve the purpose (2)Using empirical methods to study the relationship between the tunneling of large and earnings management. we Use SPSS software to undertake descriptive statistics, correlation analysis, multiple regression, finally obtains the tunneling of large shareholders and earnings management is positively related,then puts forward corresponding policy suggestions.Yu Minggui and Xia Xinping (2003) found that large shareholders take earnings management and dividend policy to encroach on the interests of medium and small investors. In order to obtain private profits Major shareholders have strong motivation to whitewash the report. The main purpose of the article is to study their correlation. If it do exist, then how do they influence each other. we want to provide some clues and ideas for the future work.