An Empirical Study Of The Influence Of Institutional Investors And Ultimate Controlling Shareholder On Earnings Conservatism

Corporate governance is one of the core systems of modern enterprise theory, and earnings conservatism is an important part of corporate governance framework. China’s accounting standards emphasize the robustness, has experienced from the question to the strengthening process. At present, few study about Earnings Conservatism in our country, the research mainly focus on its existence, measuring methods and motives existing, and on the affecting factors on earnings conservatism is still insufficient, especially from the company controlling shareholders and external shareholders’perspective.The company’s internal controlling shareholders obtain the higher control right mainly from the way of "Pyramid" holding and cross shareholdings By virtue of its own advantages of company assets, the interests of small shareholders, and may have to manipulate earnings to cover its unreasonable behavior. While the external shareholders mainly refer to institutional investors, in theory, as the company external supervisors, to a certain extent, it can supervise company’s internal controlling behavior. Therefore, the institutional investor is an important supply of company earnings conservatism; it is a heavy force to improve the earnings conservatism.But because China’s capital market development is not mature, the legal protection system of the medium and small investors is not perfect, and the Intrinsic pursuit of interests of the institutional investors is relatively outstanding, leading to the behavior of the ultimate controlling shareholders, by virtue of its high control advantages, infringe the interests of small shareholders, manipulate the company earnings is more serious. Therefore, in this context, on one hand, our paper will from the company internal control point of view, study the effect of the corporate ultimate controlling shareholders on earnings conservatism, for the study of the influence factors of earnings conservatism providing empirical basis; on the other hand, our paper from the outside shareholders angle, examines whether the institutional investors can alleviate the ultimate controlling shareholders’violation behavior, relieve the principal-agent problem between ultimate controlling shareholders and minority shareholders, so as to provide reference for how to improve China’s listing Corporation earnings conservatism. In addition, in the end of this thesis, we add an empirical study about different type of institution investors’effect on earnings conservatism, so as to provide a more comprehensive research on institutional investors.We refer to Basu (1997) surplus reversal model, choosing a shares non-financial listed companies between2009-2013as samples, and unbalanced panel fixed effects regression model for empirical analysis. We find that:(1) the ultimate controlling shareholders’ violations behavior decreased earnings conservatism, which shows that our ultimate controlling shareholder existing earnings manipulation behavior;(2) the overall holdings of institutional investors reduced the company’s earnings conservatism, and it did not alleviate the influence of the ultimate controlling shareholder on earnings conservatism;(3) In addition, study on classification of institutional investors shows that the investment funds and securities companies can’t alleviate the impact of controlling shareholders’control behavior on earnings conservatism, but the empirical study of insurance company has not formed the stable results, probably because the size of sample is too small. This shows that, in our study stage, China’s institutional investors did not play an active external supervision role in the influence of earnings conservatism.