Equity Pledge,Internal Control Effectiveness And Earnings Management

Since the securities company launched the equity pledge business in 2013,the equity pledge has quickly become the preferred financing method for the controlling shareholders of listed companies bv virtue of its low financing cost and high speed.As of the end of 201 7,a total of 3,431 companies in the Shanghai and Shenzhen A-shares were financed by equity pledge,accounting for 93.61%.Equity pledges also bring greater risks while meeting the financing needs of listed companies.For the controlling shareholder,if the stock price falls to the warning line,the controlling shareholder cannot add the guarantee in time,and the pledge of the equity will be forcibly sold by the financial institution,which will lead to the transfer of control.In order to avoid this situation,the controlling shareholder will adopt the earnings management method to stabilize the stock price.This behavior seriously reduces the quality of financial information and disrupts the resource allocation effect of the capital market.With the launch and promotion of equity pledge business,the impact of equity pledge on corporate earnings management behavior has attracted the attention of scholars at home and abroad.However,in the past,the literature paid less attention to whether the earnings management behavior before and after equity pledge will be affected by the important factors of internal control.Internal control is an important part of the company's internal governance mechanism.Its core objective is to ensure the legal compliance of business operations and the completeness of financial reports and related information.If the company's internal control level is higher,the better corporate governance effect it can bring,which means that the controlling shareholders'private interest behavior is effectively contained,which helps the internal control construction to improve.Just as China's internal control construction process is short,it is unclear xwhether internal control can effectively suppress earnings manipulation.Therefore,it Is feasible and necessary to study the mechanism of the relationship between the controlling shareholder's equity pledge and earnings management from the perspective of vwhether the internal control is effective.Based on principal-agent theory,signal transmission theory,internal control theory and stakeholder theory,this paper uses theoretical analysis and empirical analysis to examine the level of earnings management before and after the pledge of controlling shareholders of Shanghai and Shenzhen A-share listed companies from 2012 to 2017.The extent of the chance.and from the perspective of whether the internal control is effective,further study the changes in the controlling shareholder's equity pledge and the impact of the equity pledge ratio on the degree of earnings management.This paper consists of five parts.The first part is the introduction.It introduces the background of the topic,the theoretical significance and practical significance of the article.Based on the research results of equity pledge,internal control effectiveness and earnings management at home and abroad,the ideas and methods of this paper are determined.·The second part is related concepts and theoretical foundations,expounds related concepts,and the relationship between equity pledge,internal control effectiveness and earnings management from principal-agent theory,signal transmission theory,internal control theory and stakeholder theory.Interpreted.The third chapter is the theoretical analysis and research hypothesis.It mainly introduces the basic situation of China's internal control construction.On this basis,the four hypotheses of this paper are derived through theoretical analysis.The fourth chapter is empirical research.The data of Shanghai and Shenzhen A-share listed companies from 2012 to 2017 are selected as research samples,and regression models are constructed to verify the h}ypothesis of multiple regression analysis.The fifth chapter is the research conclusions,policy recommendations and research shortcomings and prospects.The study found that:(1)Compared with the company that does not pledge the controlling shareholder's equity,the equity pledge behavior of the controlling shareholder of the listed company will significantly affect the degree of accrued earnings management and the degree of real earnings management;(2)the pledge of the controlling shareholder of the listed company After that,the higher the proportion of equity pledge,the higher the degree of accrued earnings management and the degree of real earnings management;(3)When the internal control effectiveness variable is introduced,the higher the effectiveness of internal control,the more it can restrain the controlling shareholder's equit)y pledge corresponding surplus.The degree of management,but the suppression of the degree of real earnings management is not obvious;the higher the effectiveness of internal control,the more it can restrain the impact of the equity pledge ratio on the degree of earnings management,but it can not restrain its impact on the degree of real earnings management.