Largest Shareholding Ratio And Earnings Management In The Process Of Equity Reifnancing

The capital market in China is different from the capital marketof developed countries， especially reflected in the shareholdingstructure. The shareholding structure in England or America or otherdeveloped countries is relatively disperse，while our country’s is inthe relative concentrate even a highly centralized state. In recent years,the dominance seems to be typical of China’s stock market characteristics.The agency problem is particularly prominent. With the informationdisclosure of listed companies frequently exposed scandal, earningsmanagement has become a hot topic of research scholars. Most companieswill manipulate earnings to control the disclosure of earningsinformation， this information manipulation has affected the capitalmarket allocation of resources. With the development of capital markets,IPO is no longer the main way of gaining access to funds, equityrefinancing seems much more likely to get the favor of the listedcompanies. Therefore, earnings management in equity refinancing weregiven a higher degree of concern. Due to the dominance of the shareholdingstructure of listed companies in China, the largest shareholders had asuperior control of the decision-making of the company. In order toachieve the eligibility line of the allotment and issuance, the listedcompanies reach the Commission requires by manipulating earnings. Thispaper mainly discussed the relationship of the proportion of largeshareholders and earnings management in the equity refinancing process.This paper applyed the method of normative analysis and empiricalresearch.Firstly， reviewed the relevant literature of domestic andforeign earnings management and shareholdings structure secondly, stated relative concepts and theories and proposed underlying assumptions,finally drawed concrete conclusions through empirical research.Thispaper selected the samples from2008-2011equity refinancing of listedcompanies in China’s Shanghai and Shenzhen stock market. Because ofChina’s listed companies, due to the "dominance" of the ownershipstructure, the first largest shareholder control over the super top fiveshareholders. So I divided top five shareholders into two groups tostudy the relationship between earnings management and the ratio oflargest shareholding. One is the first largest shareholding ratio, theother is the second to the fifth largest shareholding ratio. Bydescriptive statistics and regression analysis, concluding: Listedcompanies in the equity refinancing process, the proportion of thelargest shareholder in the relatively fragmented and highly centralizedstate, it are more likely to manage earnings. The proportion of thelargest shareholder and earnings management is U-shaped relationship.The second to the fifth largest shareholding ratio and earningsmanagement was in direct proportion relationship. I put forward someproposals on the basis of the conclusions of the study.According to the empirical results, we found that the largestshareholder has superior control in equity refinancing of listedcompanies，other shareholders are influential in their decision-making.Minority shareholders due to its smaller stake in the entire process ofparticipation in corporate governance, has always been a “free rider”passengers, regardless of the decision-making of management orshareholders, they have no influence. The largest shareholder stake isbelow a certain critical point, with the increase in the proportion ofthe largest shareholder, the level of earnings management will be reduced， indicating that at this time the largest shareholder of themain task is to suppress earnings management behavior from themanagement to avoid reducing the company’s interests. When the ratioare greater than the critical point, with the increase of the stake, theextent of earnings management will increase, when the largest shareholderis the super powers control of their own hands, for their own personalgain, these benefits simply from minority shareholders or outsideinvestors. The earnings management behavior in equity refinancing， notonly it will infringe the interests of small shareholders and outsideinvestors， but also makes the quality of accounting informationseriously reduced. Greatly it harm the interests of investors and capitalmarkets function to optimize the allocation of resources. Protection ofminority shareholders and investors. It is imminent to specificatebehavior of listed companies to speed up the securities market especiallythe stock market, regulate the construction, All must be done to promotethe healthy development of the capital market.