Study On Internal Control,Executive Turnover And Earnings Management

In modern enterprise,shareholders hire professional managers to manage the enterprise.Accounting information is the basis for incentive compensation and performance evaluation.After the change of executives,successive executives have sufficient motive to regulate profit through earnings management so that they can improve company's performance based on lower performance and they can also increase profit through earnings management in the future.However,the higher degree of earnings management leads to decline in the quality of accounting information.Furthermore,the higher degree of earnings management is not conducive to the investors' proper decision-making and long-term interests.It has an important significance to inhibit the earnings management behavior and improve the quality of accounting information.To provide reasonable assurance of the quality of financial reporting and to provide reliable financial information is one of the objectives of internal control.This paper explores whether executive turnover causes earnings management and whether high quality internal control can restrict earnings management and the earnings management caused by executive turnover.We use standard research method and empirical research to explore.By studying contract theory,asymmetric information theory and principal-agent theory,we know that successive executives have sufficient motive to regulate profit through earnings management to make their position more stable,get the maximum amount of compensation and reputation.High quality internal control can make up for the incompleteness of enterprise contract,reduce information asymmetry and restrict earnings management caused by supervising,checks and balances and the mechanism of excitation.Using a sample of Chinese A-share companies between 2010 and 2014,our paper empirically explores the relationship between top executive turnovers and earnings management,the relationship between earnings management and quality internal control and whether high quality internal control can restrict the earnings management caused by top executive turnover.The paper finds that top executive turnover leads to significant negative earnings management when the company's discretionary accruals are below 0 and this behavior is not significant when the company's discretionary accruals are above 0.High quality internal control can restrict earnings management and can also restrict the earnings management caused by top executive turnovers when the company's discretionary accruals are below 0.This paper provides empirical basis for understanding the behavior of executives and shows that we should strengthen internal control building and strengthen the supervision of listed companies in which executives changed.