Research On The Influence Of Related Party Transactions On Enterprise Earnings Management

Company earnings management appears with the occurrence of business profits.Earnings management is a long-term management behavior with advantages and disadvantages coexisting,within the scope permitted by accounting standards,in which interest groups dominated by managers use certain means to adjust the measurement of accounting earnings in the income statement.Accrued earnings management and real earnings management are two main earnings management methods adopted by enterprises.Accrued earnings management takes adjusting accounting information as the main way,and real earnings management takes changing real trading activities as the main way.There are many reasons for earnings management.In recent years,with the increasingly strict accounting system and the strengthening of market supervision,more enterprises adopt more hidden related party transactions for earnings management.When dealing with related parties,based on mutual understanding,they can trade directly,which saves communication time and money cost,and can also use their position to reach a current agreement that is not disclosed to the outside world,thus saving management costs.For external investors,internal earnings management does more harm than good.It not only provides wrong information to external investors,but also damages market resource allocation and social and economic system,and hinders the effective operation of capital market.However,earnings management exists with the establishment of enterprises,so it has become a common phenomenon in China’s capital market for a long time.The economic market is booming day by day,and the development of institutional investors in China is growing stronger.The positive role brought by external supervision has continuously improved the operating conditions and ownership structure of listed companies.If China’s institutional investors can give full play to their external governance role,then the related party transactions of listed companies can be effectively suppressed and the earnings quality can be effectively improved,which is of great help to the sound development of China’s capital market.The deepening reform of modern enterprise system in China has promoted the development of joint-stock listed companies.Whether the earnings quality of financial reports provided by listed companies is reliable and true has become the focus of attention.For external enterprise investors,they pay more attention to the fluctuation of enterprise performance and the timely reliability of information disclosure,the rationality of enterprise internal governance and the fairness of enterprise transactions.Scholars at home and abroad have explored the relationship between related party transactions and earnings management,and found that related party transactions are a common means to manipulate profits.However,accounting standards are constantly changing,so it is necessary to re-explore the relationship between related party transactions and earnings management.There are still three different viewpoints about the role of institutional investors in the company.Then,under the current institutional environment,will related party transactions lead to more serious and hidden earnings management? Can institutional investors adjust the relationship between related party transactions and earnings management? For different types of institutional investors,will they play different roles?Based on the above background,this paper first introduces the related concepts of related party transactions,earnings management and institutional investors,and their current domestic development status.Secondly,from the measurement of earnings management,the types and economic consequences of related party transactions,and the classification and economic consequences of institutional investors,this paper reviews the relevant literature at home and abroad.On the basis of relevant theoretical support and influence mechanism,the research hypothesis of this paper is put forward.Finally,this paper divides earnings management into accruals and real earnings management,constructs a fixed effect model,selects the data of 2189 domestic listed companies from 2011 to 2019 for empirical analysis,and studies the direct impact of related party transactions on earnings management and the moderating role of institutional investors’ shareholding in the impact of related party transactions on earnings management.The research shows that related party transactions will aggravate the accrual and real earnings management of enterprises,especially lead to negative accrual earnings management of enterprises,because under the current institutional environment,listed companies in China tend to use related party transactions to reduce earnings,so as to obtain tax avoidance benefits or meet the rest needs of enterprises by using the institutional space provided by tax differences.At the same time,institutional investors’ shareholding can significantly inhibit the positive correlation between related party transactions and accrued earnings management,and supervise the negative accrued earnings management formed by related party transactions of enterprises;Classified analysis shows that stable institutional investors’ shareholding can inhibit the accrued earnings management behavior caused by related party transactions,especially the negative accrued earnings caused by related party transactions.This shows that enterprises turn more control means of earnings management to hidden real earnings management,which makes institutional investors unable to play a supervisory role.Finally,this paper finds that independent institutional investors have a significant role in supervising the real earnings management under related party transactions,which is mainly because the real earnings management harms the personal interests of independent institutional investors and strengthens its supervision motivation.The above conclusions are helpful to standardize the earnings management behavior of enterprises,improve the earnings quality and information reliability of enterprises,strengthen the truthfulness of business activities,facilitate investors to identify high-quality and high-level enterprises,maintain the effective operation of capital markets,improve the efficiency of resource allocation,and ensure the effective operation of social and economic mechanisms.Finally,this paper suggests that we should vigorously supervise unfair management transactions and earnings management,improve the self-level of various institutional investors and cultivate their active supervision ability.