The Influence Of Institutional Investors’ Share Holding Period On Earning Quality

Accounting information diclosured by public company, can reflect company’s operating conditions, it is a bridge between investors and companies. High quality information can alleviate information asymmetry, and reduce agency cost; Conversely, low quality information will damage the interests of investors. Therefore, how to limit the earning manipulation and improve the quality of disclosured information, has become a major issue. Existing literatures show that institutional investors which are external governance mechanism of public company, have become an important factor that influence the quality of disclosured information. In recent years, studying the impact of institutional investors on earning quality has attracted the attention of many domestic and foreign scholars.Since China Security Regulatory Commission made a strategic vision which is "develop institutional investors extraordinarily and creatively", institutional investors have achieved a rapid development. They have now become an important force in the capital market. Because of their scale advantages and professional advantages, effective supervision and management behavior, all parties have high hope to institutional investors for the regulation of public company. However, the past empirical analysis reveal that institutional investors show different attitude to company governance, due to the degree of ownership concentration, holding period, regulatory cost and other aspects of the differences. Positive institutional investors can actively participate in the corporate governance, active the role as supervisors, inhibition of surplus management; Negative institutional investors are not interested in the corporate governance of public company, by "voting with their feet", they not only won’t restrain earning management behavior, but also will aggravate the earning management behavior sometimes. In this paper, we focus on how and why institutional investors holding period affect earning quality of public company. The influence of Institutional Investors’ Share Holding Period on Earning QualityIn our country, institutional investors started late, the development of capital market is not mature enough, and the participation of institutional investors on corporate governance is restricted. Although there is willingness for institutional investors to take part in company governance, but due to limited power and information asymmetry, institutional investors’ influence on public company is not enough, the cost involved in governance outweigh the benefit. Therefore institutional investors will choose to vote with their feet (sell stocks) in order to avoid their potential loss. And this behavior will affect stock price and manager’s compensation, thus affect earning quality. From the perspective of company manager, we know that institutional investors with longer holding period may have a greater impact on stock price, because they have a greater ability to send bad signal to public investors. From the perspective of institutional investors, institutional investors will not expose manager’s earning manipulation behavior, because the fluctuation of stock price will also bring them great loss. Of course, institutional investors information may have not detect such earning manipulation behavior. No matter what kind of reasons that earning manipulation behavior has not been revealed, the result is the reduction of public company’s earning quality.This paper have six chapters:The first chapter, present the method, background, significance, framework, and innovation; The second chapter is a literature review, including institutional investors,earning quality and the supervision of public company, and then make comments; The third chapter, is an analysis for the impact of institutional investors on earning quality of public company; The fourth chapter, is an introduction for the hypothesis, samples, variables and regression models; The fifth chapter, we use the empirical method to analyze the impact of institutional investors’ holding period on earning quality of public company; The sixth chapter, are the conclusions, research inspiration, research limitations and future outlook of this paper.In this paper, through combining normative research and empirical research method, reach the following conclusions:First, under the full sample, institutional investors’ holding period have negative correlation with earning quality significantly; Second, when institutional investors hold stock less than2years, share holding period have no correlation with earning quality;when institutional investors hold stock more than2years, share holding period have negative correlation with earning quality significantly. Third, compared with non-independent institutional investors, share holding period of independence institutional investors is negative with earning quality more significantly. Fourth, information asymmetry have effect on the relationship between institutional investors’share holding period and earning quality of the public company.The contribution of this paper can be mainly divided into the following three aspects:Firstly, selecting share holding period as institutional investors’characteristic which is a unique perspective, expand the study of this field. The existing research mainly focus on the overall investor ownership, or only divide institutional investors into the short-term and long-term investors by their holding period, few study focus on the influence of holding period and earning quality. The conclusions of this article enrich the existing research of institutional investors and earning quality.Secondly, the minimum time and influential factors in this paper, give a direction for future research of institutional investors and earning quality. This paper try to find institutional investors’holding period growing to what extent will attract manager’s enough attention, and cause earning manipulation. Meanwhile, the paper also divides institutional investors into independent and non-independent investors according to the commercial cooperation between institutional investors and public company. In addition, we also add information asymmetry to the model, in order to find that whether information asymmetry affect the relation between institutional investors and earning quality under different circumstances. Current studies seldom analyze the relationship between institutional investors and earning quality from so many angles.Finally, this paper provides an empirical basis for policy formulation from a new perspective. Through the above conclusions, this article recommends that the relevant departments should increase voting rights of institutional investors, reduce information asymmetry, and encourage the development of independent institutional investors, thus enhance earning quality.Inadequacies of this paper are as follows:First, only select950sample, it is small, and only choose institutional investors from the former top ten shareholders of public company who holding public company’s stock continuously; Second, The influence of Institutional Investors’ Share Holding Period on Earning Quality earning response coefficient as a broader application of measurement methods require high effective market, while Chinese stock market is a typical "policy market", the stock can not be a real reflection of the operating and financial condition of public company, therefore earning response coefficient contain a lot of noise; third, this article only consider the type of institutional investors and the level of information asymmetry, do not consider the competition of market and environmental factors that may affect the relation between institutional investors and earning quality.