Research On Managerial Ability, State Ownership And Earnings Quality

Earnings quality is one of the central issues in academic studies all around the world. There are a large number of literature on earnings quality, one important area of which is on the determinant factors of earnings quality. There are plenty of the previous literature on the determinant factors of earnings quality while they are mainly concentrating on company-specific characteristics, such as firm size, internal control and board independence. There are a small number of literature on the determinant factors of earnings quality on management-specific aspect. However, management plays the most direct and most critical role on effecting earnings quality. Generally, Earnings quality is determined by the business performance of the companies and the accounting treatment process that generate earnings figures. Management is the executor of the companies’business decisions and is responsible for the preparation of financial statements. Therefore, management will not only affect the operating performance of the companies, but also affect the generation of the accounting treatment process, so that they will bring an important impact on earnings quality, the same with managerial ability as the nature characteristic of management. Meanwhile, in our country the listed companies are of different kinds of owner-ships.The different owner-ships may bring about different influence on the relationship between managerial ability and earnings quality.This paper makes a systematic literature reviews on earnings quality and managerial ability respectively and is based on principal-agent theory, human capital theory and incentive theory. It selects the manufacturing listed companies in Shanghai and Shenzhen Stock Markets of the year from 2010 to 2014 as the samples, and uses accruals model to measure earnings quality and uses the method of Demerjian et al.(2012), which is based on DEA, to measure managerial ability. It conducts the empirical test on the influence of managerial ability on earnings quality, and in the further research tests the effect of state ownership on the relationship between managerial ability and earnings quality. The two hypothesis of this paper are confirmed and conclusions are drawn that managerial ability is positive with earnings quality in Chinese manufacturing listed companies while state ownership weakens the positive impact of managerial ability on earnings quality. According to the research conclusion, this paper puts forwards some suggestions to improve earnings quality and to solve the problems rooted in state-owned companies from two aspects as companies’internal governance and external market rules.There are certainly theoretical and practical significance of this paper. This paper expands the research points of earnings quality and enriches the research contents of managerial ability, and confirms the significant positive relationship existing between them. On the other hand, this paper concludes that the higher managerial ability can bring higher earnings quality, providing a new idea for the companies to improve their earnings quality, and puts forward some suggestions aiming to solve the problems rooted in state-owned companies.The innovations of this paper are as follows:this paper researches on managerial ability, state ownership and earnings quality; selects the latest financial data of Chinese capital market the year of from 2010 to 2014 as samples.