Relationship Of Management Authority,Internal Control And Earnings Management

At present, China is in a stage of rapid development of the socialist market economy. Whether the economy can run in good order largely determines the development direction of the market. However, the phenomenon of earnings management is widespread, which not only influences the effective economic order, but also seriously hampered the healthy development of the domestic market. Although the listed of company’s accounting earnings management behavior has its rationality and inevitability, it does not meet the accounting value of reliability and authenticity. Many listed companies tend to follow its management needs to whitewash their accounting information, so that the report results seriously deviate from the actual operating conditions, thus misleading investors. If such behaviors are not supervised effectively, or allowed to spread in society, it will not only disrupt the normal order of the capital market, but also affect the company’s development. From the point of corporate governance, earnings management is not just an accounting issue, but an issue that is related to a series of internal and deep company problems. The listed company’s internal control systems and management’s power distribution are the two key factors that impact the earnings management behavior.In modern enterprise system, the company’s ownership and management is separated, so the shareholders of company introduced professional manager system to maintain the daily operations of the company, but as a rational human manager, in order to seek the maximization of their own interests, they are likely to take measures that will damage the interests of shareholders or departure from the objective of maximizing the enterprise value. In order to reduce agency costs, the shareholders and the management signed the contract which is based on the accounting standards of performance, in order to achieve unity of the aims, but due to the inadequate regulatory environment of internal and external, management may still seek their own interests by means of earnings management. Internal control is an effective way to improve their own quality of information for financial reporting, and an important institution to maintain healthy and stable development of the market, so whether the high-quality control can effectively suppress internal power relations between management and earnings management is worthy of our study.In this paper, through empirical research methods and building a model, we study the relationship between the management of power and earnings management, internal control and earnings management and roles of internal control in power between management and earnings management. Specifically, we have three points to male. First of all, build a power management evaluation system in order to calculate the size of the listed company’s management authority. This article constructs management and other aspects of the evaluation system of power concurrently from management situation(Dual), management office time(Tenure), equity disparity(Diso) and size of the board(Bsize), and power as the main explanatory variable. Secondly, for earnings management measure, on the one hand, we draw the Accrual Earnings Management measured by the modified Jones model(1995) which was generally recognized and widely used by scholars at home and abroad, using the number of discretionary accruals to measure the accrual earnings management, and on the other hand, we reference findings in Roychowdhury(2006) and Cohenet al.(2008), using the following three instruments to measure the true activity earnings management such as the controlled operating cash flow(R_CFO),the controlling production costs(R_PROD) and the controlled proportionally Costs(R_DISEXP), And considering these three areas to build an overall indicator to measure the real earnings management activities.with the accruals and earnings management and real earnings management activities as explanatory variables. Furthermore, we use the internal control index ICI released by the Dibo risk management techniques Limited to get the internal control of listed companies to measure the level of quality, and make it an explanatory variable to study the internal control and earnings management relations, and to further explore whether the management authority in the management of the impact of surplus played a suppression effect. Finally, correspondingly control the respectively net profit margin on assets(Roa), asset-liability ratio(Lev), firm size(Size), business growth(Growth), annual dummy variables(Year), industry dummy variables(Industry) and other key factors.