A Study On The Relationship Among Institutional Investors’ Shareholding, Board Governance And The Earnings Management

The widespread earnings management behaviors of listed companies are always sensitive issues of corporate governance. The authenticity of financial statements was contorted by earnings management, lead to the accounting information can not reflect the condition of business fairly and objectively, this will mislead the judgments and decisions of stakeholders seriously, and even affect the effective allocation of social resources. With the rapid development of Chinese capital market, the earnings management of listed companies in China has become more evident, so how to suppress the earnings management becomes the concern. Many studies show that the quality of accounting information will be impacted by the structure of corporate governance, there are many obvious defects in our corporate governance, which provide many opportunities to manipulate earnings. As the core of corporate governance, the level of board governance will also have a significant impact on earnings management. Therefore, in order to suppress the earnings management behavior, we should improve board governance mechanisms to improve the level of board governance. In recent years, institutional investors have been developed rapidly both in China and aboard, and has become an important investors in domestic capital market, and has changed the ownership structure of Chinese company gradually. Under this background, whether institutional investors have an effective supervision of management rely on the professional advantage and scale advantages, to form a certain supplement on corporate governance and board governance mechanism, need to be tested by empirical research.In recent years, many scholars have studied the relationship between institutional investors and earnings management, but most of the studies just focus on the relationship between Institutional investors and earnings management or between board governance and earnings management, only few scholars have studied the relationship between the three. This paper attempts to study from this perspective, to study whether the board governance can play an intermediary role in the relationship between institutional investors and earnings management. Namely, whether the Institutional investors can suppress earnings management through board governance.Based on the relevant literature and theory of institutional investors, board governance and earnings management. We chose listed companies in Shanghai and Shenzhen Stock Exchange from 2007 to 2013 as the object of study. To test the hypothesis proposed through descriptive statistical analysis, correlation analysis, multiple linear regression analysis and other statistical methods. The main conclusion as following:1. The institutional investors of top ten shareholders of sample firms can influence the part of the board governance variables. Institutional investors have a significant positive impact on latter board size and a significant negative impact on board leadership structure and the shareholding ratio of directors; but they have no significant influence on the proportion of independent directors and board meeting frequency.2. The board governance mechanisms can affect the earnings management behavior. The board size and the the shareholding ratio of directors have significant negative impact on earnings management. The board meeting frequency and the board leadership structure has a significant positive effect on earnings management. But the shareholding ratio of directors have no significant influence on earnings management.3.The Board size, the leadership structure of board of directors and the board of directors shareholding ratio plays an intermediary role in the relationship between institutional investors and earnings management, Namely, the Institutional investors can suppress earnings management through them.Finally, we put forward some suggestions about the improvement of board governance and the development of institutional investors, and summarized the limitations of this study, as well as the existence of the future direction for further research.