The Impact Of Retail Shareholders’ Participation In Governance On Corporate Earnings Management

Since the establishment of China’s capital market,individual investors have exceeded 190 million,with retail investors accounting for the vast majority.With the deepening reform and development of the capital market,the system for investor protection is constantly improving,and the enthusiasm of retail shareholders to participate in shareholder meetings is starting to increase.However,there are still phenomena indicating that the cost of protecting the rights of retail shareholders is relatively high,and the general belief that their shareholding ratio is low and they lack the right to speak has not changed.Therefore,the effectiveness of implementing the investor protection system is greatly limited.The shareholder meeting system of listed companies is the main way for retail shareholders to participate in corporate governance,and there is relatively little research on whether this approach will have an impact on earnings management.Therefore,this article conducts research on the enthusiasm of retail shareholders to participate in governance and corporate earnings management,and explores its mechanism of action,providing reference significance for policy makers to improve the protection system for retail investors,encourage retail shareholders to actively participate in shareholder meetings,and promote the improvement of governance level of listed companies.Will the active participation of retail shareholders in shareholder meetings have an impact on the company’s earnings management? Is it a supervisory effect or a pressure effect? What is the mechanism of action? Have the legitimate rights and interests of retail shareholders been effectively protected by actively participating in shareholder meetings? Has it alleviated investors’ information disadvantage? This article takes listed companies in all sectors of the Shenzhen A-share market from 2014 to 2021 as the research object,and combines theories such as catering theory to use the Ordinary Least Squares(OLS)regression method to explore in detail the impact of retail shareholders’ participation in governance on corporate earnings management.And a group regression was conducted based on audit quality,institutional investor shareholding and shareholder investment preferences,further exploring the mediating role of media attention and public attention.Finally,the impact of active participation of small and medium-sized shareholders in corporate governance on the true earnings management of enterprises was analyzed.The research results show that:(1)there is a significant positive correlation between the enthusiasm of retail shareholders to participate in corporate governance and earnings management.The higher the enthusiasm of retail shareholders to participate in governance,the more pressure effect they exert,forcing the management to engage in earnings management to cater to the interests of retail shareholders;(2)The above pressure effect is more pronounced in situations where audit quality is low,institutional investors hold lower shares and shareholders prefer to achieve stock arbitrage through short-term trading;(3)The participation of retail shareholders in corporate governance has increased media and public attention,increased market pressure effects,and induced management to manipulate earnings;(4)The management of enterprises will choose to adjust accrued earnings management when dealing with the pressure effect brought by the participation of retail shareholders in governance,but will not choose real earnings management that causes substantial damage to the value of the enterprise.The research contribution of this article is to examine the impact of the participation of retail shareholders in shareholder meetings on corporate earnings management from the perspective of their enthusiasm for participation in shareholder meetings.This not only enriches the literature on the active participation of retail shareholders in corporate governance,but also expands relevant research on the influencing factors of earnings management.At the same time,the research conclusions expand the understanding of the role of minority shareholders in corporate governance,and provide empirical evidence for relevant policy making.