Research On The Influence Of Board Informal Hierarchy On Earnings Management

In recent years,the problem that listed companies in China beautify financial statements by means of surplus management to satisfy their own interests is worse.In the capital market where the management and ownership rights are fully separated,the means of surplus management also tend to be diversified,hidden and complicated,which makes the results of surplus management problems more serious.The board of directors plays a key role in corporate governance and is entrusted with decision-making and governance powers,which include the important task of monitoring corporate surplus management.Much of the existing literature focuses on the impact of formal board structure on corporate surplus management,but this path of action does not adequately explain the differences in firms’ efficiency in board decision making and effectiveness in monitoring.In fact,in addition to the formal board structure,there exists a complex set of informal interactions among members within the board that have an important impact on firms’ surplus management.Existing studies have found that informal hierarchy helps to establish good organizational order among board members,enhance cooperation and communication within the board of directors,thus and enhancing communication and willingness to cooperate among directors,which can help the board of directors reach consistent strategic decisions more quickly and alleviate information asymmetry and agency problems,thus enhancing the governance effect of the board of directors.Therefore,it is worth exploring in depth how this governance role of the informal hierarchy formed within the board of directors affects corporate surplus management and how it affects the choice of different corporate surplus management approaches.In this paper,firstly,the background and significance,the content,the research method and the main innovations are described.Next,relevant domestic and international studies are reviewed and the entry point is identified.Then,the theories involved are explained and the research hypotheses are presented.Then,the data sources and selection principles were explained,the research variables were defined,and the regression model was constructed.Subsequently,the listed companies in Shanghai and Shenzhen A-shares from 2008-2019 were selected as the research objects and were studied empirically.On this basis,research conclusions are drawn and relevant policy recommendations are given.This paper finds that the informal board hierarchy can inhibit overall corporate surplus management.Moreover,informal board hierarchy has different effects on different ways of surplus management by firms.Specifically,a clear informal board hierarchy can inhibit firms from engaging in accrual versus true surplus management,but it can also facilitate the generation of categorical transfer surplus management.Through further research,it is found that the higher the quality of internal control,the greater the governance effect of informal board hierarchy to inhibit corporate surplus management.That is,sound corporate internal control can enhance the effectiveness of internal oversight,which can alleviate the problem of ineffective board oversight,thus making the board of directors effectively inhibit corporate management’s behavior of surplus manipulation.The main innovations of this paper are: previous studies have mostly focused on examining the governance effects of the formal structure of the board of directors and lacked empirical analysis on the influence of the informal board hierarchy on corporate surplus management;in addition,previous studies have often been limited to analyzing the influencing factors of various surplus management approaches separately,lacking a comprehensive research analysis on corporate surplus management.Based on the perspective of the invisible informal hierarchy of the board of directors,this paper thoroughly explores the mechanism of the influence of the informal hierarchy of the board of directors on corporate surplus management and its different approaches.Firstly,it expands the research direction of the informal board hierarchy;secondly,it also refines the influence of the informal board hierarchy on different types of surplus management approaches.Finally,it provides a new perspective for the study of governance corporate surplus management.