An Analysis Of The Relationship Between Ownership And Earnings Management

According to decision-making availability, accounting determined to provide useful financial information to benefit counterparts, so that users of financial information could pay more and more attention to the authenticity and transparency of financial information. Managers in listed companies are more likely to control earnings management by sending fault information to obtain personal gains when their companies are about to allot shares, make a loss or face other pressures. Earnings management widely existed in the capital market of China. It not only has a negative impact on the users of information, but also impedes the development of market economy. Many scholars have paid attention to this issue, they think that the faultiness of internal governance mechanism is likely to lead to earnings management. It is well known that the ownership structure is the basis of internal management. Therefore, if we want to protect the financial information users and ensure the healthy development of the capital market, we must make sure that the information we get is reliable. Only if we take actions to suppress earnings management of the listed companies, can we make sure that the information is useful. Then we must perfect the government mechanism, which means we should try our best to optimize the ownership structure. This thesis aimed at the improvement of the earnings management quality, which perfects the internal management in listed companies and promotes the capital market by discussing earnings management under different ownership structure.Earnings management is a kind of accounting behavior. It asks for the managers based on accounting standards influence financial to report to obtain their own gain. It includes misleading shareholders’ judgments to potential economic benefits and influencing contracts,which is precisely based on the disclosure data through modified data. There are three intrinsic motivations of earnings management: 1.contract motivation; 2.revenue motivation; 3.capital motivation. Theoretically it is the result of the Efficient Market Hypothesis, Asymmetric Information Theory and Principal-agent Theory. Ownership structure means the property and character of different shareholders. It’s divided into two parts: ownership property and ownership concentration. The behavior of shareholders are based on ownership property, which defines the type of shareholders. According to ‘rational man’ hypothesis, shareholders would take actions to obtain gains. Ownership concentration means how much stock a shareholder holds. The bigger the value of ownership concentration is, the more power a shareholder gets. Once a shareholder gets more power, he would tend to control earnings management.Firstly, this thesis sorts out and commentary literature about ownership structure and earnings management. It expounds China’s special ownership structure and put forward the different opinions of earnings management’s concept and motivations. It explains the relation between earnings management and ownership concentration, ownership counterbalance, the proportion of nation. It also makes a review of relevant literature. Secondly, it explains the theoretical basis of ownership structure and earnings management, including the definition, the characteristics of ownership structure and causes of earnings management. It introduces the basis of earnings management, including the definition and causes of earnings management. Finally, on the basis of the above theory, it analyzes the relationship between ownership structure and earnings management from three aspects, such as ownership concentration, ownership counterbalance and proportion of nation.Based on the above theories, the thesis also make empirical section. The empirical research includes two parts. Firstly, the earnings management level in the sample must be calculated. The thesis chooses the related data from all the A-share listed companies in China as the research object during 2009-2013. Based on former study, Jones model is adopted for calculating China’s A-share listed companies’ non-divisibility accruals profit(NDA) by regression measurement year by year. Total accruals profit(TA) minus NDA is the Divisibility accruals profit(DA). The absolute value of DA is the earnings management level. Secondly, the thesis analyzes the effect of ownership structure on DA by the correlation analysis and regression analysis from three sides: ownership concentration, ownership counterbalance, the proportion of state-owned share. In the process, the ratio of the second to the tenth largest shareholders, the proportion of managers and the proportion of institutional investors stands by ownership counterbalance.The empirical results are:(1) The ownership concentration and earnings management are directly related. The higher level of ownership concentration, the higher level of earnings management will be.(2) The ownership counterbalance negatively correlated with the earnings management level. The ratio of the second to the tenth largest shareholders checks and balances the first big shareholder. Besides, the proportion of managers and institutional investors could reduce earnings management.(3) The proportion of state-owned share positively correlated with the earnings management level. The more state-owned share is, the higher the earnings management will be.Finally, the thesis puts forward suggestions about the optimization of ownership structure based on the conclusion and research methods.