Top Management Turnover,Earnings Management And Corporate Investment Efficiency

With the development of China's market economy,private enterprises play an increasingly important role in our country.Whether the investment is effective is of great significance to private enterprises due to the fact that private-owned enterprises are weaker in finances and more likely to be affected by market risks than state-owned ones.Investment activity is one of the core issues in corporate finance.It is of great importance to improve investment efficiency for the operating of modern companies.As the decision-maker and executor of the investment,corporate managers have important influences on the investment efficiency.Since the existence of the agency problem,managers have opportunities to make investment decisions that benefit only themselves but are harmful to the corporate development.Effective corporate governance mechanism is needed to restrict the self-interest behaviors of the managers.Whether could the mechanism of management turnover play the role of governance and achieve the purpose of improving the investment efficiency? Through what kind of behavior does management turnover affect the investment efficiency of the company? This paper explores this question with empirical analysis methods.The paper studies the relationship among top management turnover,earnings management and investment efficiency,using 280 private-owned listed companies in China from 2006 to 2013 as the research sample.The modified Jones model and Richardson(2006)model are respectively used to measure the extent of earnings management and the investment efficiency of the companies.Empirical results indicate that:(1)Top management turnover has a significant influence on the corporate investment efficiency.When the top management changes,there will be a considerable reduction in the corporate investment efficiency.Compared with the firms which under-invest,the top management turnover has a higher effect on the ones which over-invest.(2)There is a negative relationship between earnings management and corporate investment efficiency.The earnings management behavior significantly increases the inefficient investment of the company,which causes the reduction of the investment efficiency.(3)Top management turnover will lead to a higher level of earnings management.Whether it is Chairman turnover,CEO turnover or CFO turnover,top management turnover is significantly and positively correlated with earnings management.(4)Earnings management plays a whole mediating role in the relationship between top management turnover and investment efficiency.That is to say,top management turnover influences investment efficiency through the mediating role of earnings management.Finally,based on these conclusions,we present the policy suggestions of improving corporate investment efficiency.