Board Informal Hierarchy And Real Earnings Management

The strengthened supervision of all parties limits the space for management to implement accrued earnings management.In order to convey good performance signals,management may choose to implement real earnings management.However,real earnings management is not conducive to long-term operation of enterprises and misleads investors to make decisions.The actual cases of board operation failure prompt scholars to search for a more effective board governance structure.It is difficult to explore the internal operation process of the board only by examining the characteristics of the formal structure of the board.Board informal hierarchy affects the interaction of board members,providing a new perspective for the study of the effectiveness of board governance.However,The effect of board informal hierarchy has not been consistent in academic circles.Therefore,this paper examines the effect of board informal hierarchy on the real earnings management,and further explores the moderating effect of board size,scale of independent director and the proportion of executive ownership.This paper uses the expected status theory,power distance theory,principal agent theory and information asymmetry theory to explain how board informal hierarchy in the high power distance society weakens the supervisory ability of the board of directors,and then promotes the real earnings management level of enterprises.This study selects A-share listed companies in Shanghai and Shenzhen during 2008 to 2020 as the research sample to conduct multiple linear regression analysis,and finds that board informal hierarchy is positively correlated with real earnings management,board size and the scale of independent director play a negative moderating role in the relationship between the two,and the proportion of executive ownership enhances the positive correlation between the two.Further research shows that board informal hierarchy not only promotes the level of real earnings management,but also promotes the level of accrued earnings management.When the highest status member of board informal hierarchy is chairman and general manager,board informal hierarchy has a more significant positive effect on the level of real earnings management.Compared with board informal hierarchy based on political connection,board informal hierarchy based on social connection has a more significant positive effect on real earnings management.As China is a society with high power distance,this paper analyzes the effect of board informal hierarchy on real earnings management in combination with the characteristics of the formal system,enriches the research on the influencing factors of real earnings management,provides enlightenment for the supervision of earnings management behavior of listed companies,and selects directors for listed companies in China.Some suggestions are given to improve the effectiveness of board governance by rationally arranging the differential structure of directors’ status.