CEO Power, Strategic Differences And Earnings Management

As one of the most classic subject of financial management,earnings management has always been the focus of scholars and enterprises.A mass of accounting scandals exposed promotes earnings management research.China has on the special period of economic transition which gives a process impetus to enterprises to make new strategy reform which may impact financial activity.Some companies prefer taking strategies which deviate from common ones,therefor informing deviant strategy.This kind of strategy may bring chance as well as challenge to comanies,so it also exerts profound influence on financial activities.So people question that if deviant strategy affect earnings management.At the same time,the CEOs whose power are varied may have different kinds influence on making decisions.It’s obvious that it may also affect the relation between deviant strategy and earnings management.By combing the domestic and foreign literatures,this paper found that separate studies on strategy and earnings management are relatively abundant,but the research of combining the two ares is still rare.What’s more,most research which combined didn’t consider the influence of CEO power.Based on a sample of firms from the Shanghai stock market for the period 2012–2016,this paper examines the relation between strategy deviant and earnings management and whether CEO’s power would influence this kind of relation.The results are as follows: first,the increase of strategy deviant stimulates the earnings management.Second,the CEO’s power increase the likelihood of earnings management.Lastly,the CEO’s power strengthens the relation between strategy deviant and earnings management..According to these conclusions,following suggestions are given for promoting the development of enterprises:first of all,firms should make reasonable strategy decision which could benefit firms to advance core competitiveness.Furthermore,both investors and companies should put more attentions to strategy information,it’s essential for companies and government to consummate the strategic information disclosure system.Last but not the least,companies should distribute the power reasonably between CEO and other executives so that maintain the balance.These results of this paper are of theoretical and practical significance.As broaden the scope of the previous research,it is beneficial for enterprises to make more scientific and reasonable strategic decisions,improve the information disclosure,thereby enhancing the level of corporate governance.