Governance Of Non-State-Owned Shareholders,Internal Control And Earnings Management Of State-Owned Enterprises

In the context of the new era,China’s economic growth has slowed down and is transitioning towards a high-quality economic development level.State-owned enterprises(SOEs)play a crucial role in the Chinese economy,but they have faced challenges such as low efficiency,inadequate innovation capabilities,weak market competitiveness,and inefficient asset allocation,which are the results of long-term dependence on government support.The mixed-ownership reform has become an important way to improve the current situation of SOEs.Mixed ownership is an exploration of the reform of SOEs,which involves introducing non-state capital to achieve a system in which state-owned and non-state-owned capital j ointly invest,operate,and benefit from the enterprise.This arrangement can fully utilize the advantages of market mechanisms,increase enterprise efficiency and competitiveness,while maintaining the control of state-owned assets and protecting public interests.Therefore,the implementation of mixedownership reform of SOEs is necessary for China’s economic transformation and upgrading.It can inject more market-oriented mechanisms and resources into SOEs,optimize their resource allocation and governance structures,improve their market competitiveness and innovation capabilities,and promote the sustained and healthy development of SOEs in the capital market.In the capital market,a company’s earnings information is the main reference basis for investment decision-makers.However,earnings management issues are prevalent in listed companies,and specifically in SOEs,the management may manipulate the earnings for motives such as reversing losses,tax avoidance,and political promotion.They use their political and market positions,as well as the lack of competition pressure and regulation,to carry out real earnings management(REM),which seriously affects the financial health of the enterprise.This not only affects the accuracy of financial decision-making but also damages the interests of investors.The government pays high attention to the disclosure quality of SOEs earnings information in this reform.Therefore,it is necessary to investigate the relationship between non-state shareholders’ participation in SOEs governance and the REM in these enterprises.Such research is of great importance for improving the governance structure of SOEs,regulating their financial data,enhancing the quality of their earnings information,and promoting their high-quality development,especially during a critical period of comprehensive and deepening reforms.This study examines the relationship between non-state shareholder governance and real earnings management in Chinese SOEs that participated in mixed-ownership reform from 2013 to 2020.Using three indicators-ownership diversity,ownership balance,and the proportion of non-state appointed directors-the effectiveness of non-state shareholder governance is measured.The study also considers the heterogeneity of the impact of non-state shareholder governance on REM,taking into account internal control quality and the level of competition in the industry in which the SOE operates,which is unique to China.The results indicate that the three indicators of non-state shareholder governance are negatively correlated with REM,suggesting that greater involvement of non-state shareholders in SOE governance can effectively inhibit REM.Furthermore,the study finds that the inhibitory effect of non-state shareholder governance on REM is more significant in SOEs with higher internal control quality and in industries with more intense competition.These findings provide insights for improving the earnings quality and internal governance mechanisms of mixed-ownership SOEs in China.