The Difference Of Corporate Governance Level, Analyst Coverage And Earnings Management:Theoretical Analysis And Empirical Test

Investors make investment decision according to financial information in capital market. The earnings managements are prevail among corporations based on the motivation of listing, refinancing, avoiding loss and delisting. And this behavior affects the transmit of true accounting information, reduces the quality of accounting information, damages the benefit of all the investors and disturbs the effective development of capital market. Earning management is the main reason of the low-quality accounting information. So restricting earnings management is the necessary way to protect investors’ benefit, optimize resource allocation, maintain social economic order, promote economic sustainable and healthy development. So earnings management is the emphasis among theoretical and practice cycle all along.The earnings managements are prevail among corporations in our country’s capital market, in this background studying how the corporate governance and analyst coverage effect earnings management, then proposing effective suggestion of restraining earnings management has obvious theoretical value and practical significance. In capital market, analyst has the dual role of the user and provider of accounting information, and this dual role endows analyst special position and function. On one hand, analysts make use of his personal professional advantage and channel of information. Collecting and clearing up every corporate’s accounting information. Then they provide professional research reports. On the other hand, analysts provide the research reports to investors to guide the investment decision. In this way they diversify the market channels of information. In Chinese capital market, whether the analyst coverage can play the exterior governance role to restrain earnings management, or put overloaded stress to management in result of aggravate earnings management, is a question worthy of being verified. This paper also contains internal corporate governance. It tests whether or not the influence of analyst coverage to earning management varies with different corporate governance. This paper finds that analyst coverage has a strong inhibiting effect on positive earnings management, but there is no effect on negative earnings management. Study also shows that high corporate governance level’s companies’ absolute value of discretionary accruals and positive earnings managements have a significant response to analyst coverage, while there is no such influence in high corporate governance level’s companies, which proves high corporate governance level’s companies’ earnings managements have more significant response to analyst coverage in some extent. In the end, the paper gives some relevant policy suggestions based on a series of theoretical analysis and empirical research conclusions.The paper is divided into six parts, and the major research content of this essay is as follows:The first part is the introduction. This paper puts forward research motive and significance. Then, it proposes content, ideas and methods of this paper.The second part is the literature review. It conducts a reasonable review of available literatures in three aspects:the influence factors and economic consequences of analyst coverage and the relation between analyst coverage and earning management.The third part is the theoretical analysis and hypothesis. This part uses correlation theory to analyze the relation between analyst coverage and earning management and the relation between corporate governance and earning management. Then it puts forward the research hypothesis.The fourth part is the empirical design. On the basis of theoretical analysis in Chapter three, this section contains sample selection, variable design and model construction.The fifth part is the empirical test. This section includes descriptive statistics, multiple regressions of analyst coverage affecting earning management, grouping regression of testing the different influencing between good corporate governance and bad corporate governance. Finally, by using the instrumental variable method and variable substitution to deal with the endogenous problem, I do the robustness test.The sixth section is about the empirical conclusion and suggestions. According to the empirical result, this essay draws several conclusions and based on conclusions, this paper gives some reasonable and practicable suggestions. Then it describes the limitation and shortcomings as well as the research direction in future.This article’s innovation mainly manifests in that it study the relation between analyst coverage and earning management in Chinese capital market. To find out whether the analysts will play the exterior governance role to restrain earnings management, or put overloaded stress to management in result of aggravate earnings management in China. Then the grouping regression of testing the different influencing between good corporate governance and bad corporate governance, it test the different reaction of corporates to analyst coverage. Hoping enrich the correlational research on earning management.