The Effect Of Pyramid Ownership Structure On Earnings Management Of Family Listed Companies

The company’s financial situation and operating results of the financial information is themain basis for investors to make investment decisions. Accounting earnings information is thecore information in the financial information. The signing and execution of firm contractsbase on financial information. So accounting earnings information inevitably become acontrolled object by listed companies. Holding families in the family of listed companies is ata distinct information advantage. So they have the ability and motivation to influence thegeneration and reporting procedures of accounting earnings information, resulting in thegeneration of earnings management behavior.Family listed companies in our country generally use a pyramid ownership structure,which results the separation between cash flow rights and control rights of ultimatecontrolling shareholder. It further intensifies the agency problem between the controllingfamily and external minority shareholders in concentrated ownership structure. The holdingfamily have more strong motives executing earnings management to conceal theexpropriation behavior to outside shareholders.In the unique context of China’s emerging market economy, there are large differences inownership structure and agency problems between the family of listed companies in differentways. Also the internal mechanism of the ownership structure on earnings managementbehavior is not the same. So this article will divide the family listed companies into twocategories in accordance with the Listing, and analyze comparatively the differentcharacteristics of pyramid ownership structure, earnings management, as well as therelationship between the two by deductive reasoning and empirical research methods.The results show that:(1)The degree of earnings management of direct listing familycompanies is significantly higher than the indirect listing family companies.(2) It appearsU-shaped relationship between the cash flow rights of controlling family and the extent ofearnings management in indirect listing family companies. In other words, the earningsmanagement increases with increasing the stake of the family controlling shareholder, andthen reduces when the stake of family controlling shareholders reaches a certain percentage.There are negative correlation between the cash flow rights of controlling family and theextent of earnings management in the direct listing companies. The greater the cash flow right,the lower the extent of earnings management.(3)The extent of earnings management appearspositive correlation with the separation degree of cash flow rights and control rights ofcontrolling family in the direct listing companies. The greater the degree of separation, the more obvious the extent of earnings management. The effect of the separation degree of cashflow rights and control rights to earnings management is not obvious in direct listing familycompanies, there is no obvious correlation between the two.