Corporate Governance, Disclosure Transparency And Earnings Management

Since the Enron collapse in mid-2002, increasing the disclosure transparency, and protecting the legal rights of social public investors, have already become the focus questions of corporate governance improvement. Corporate disclosure is critical for the functioning of an efficient capital market.The disclosure transparency is defined as the widespread availability of relevant, reliable, timely, explicit information about the periodic performance, financial position, investment opportunities, governance, value, and risk of publicly traded firms.The information asymmetry in the capital market requests a listed company can sufficiently, accurately, in time and clearly disclose the related information to the public investors. Increasing the transparency not only contribute to the improvement of market efficiency,but also can help to supervise the behavior of shareholder, and protect the benefits of small shareholder.The main purpose of this article is to analysis the function mechanism of corporate governance to disclosure transparency, comprehend the cause of disclosure behavior of company, and to explore the valid path of increasing transparency. In the meantime this paper gives a review of the relationship between earnings management and disclosure transparency, and provides theoretic support to earnings management supervision mechanism. Further, this paper makes a research on the influence of transparency to the capital market, and the impact on company stock risk and fund investor'behavior.This dissertation begins with literature review and comments from a comprehensive research perspective. This paper provides a framework for analyzing the Transparency. According to my classification, the research is divided into two major types: transparency of the country and market level and the company level. This paper develop a framework for conceptualizing the corporate transparency at the company level. Disclosure transparency research of the company level can is divided into exogenous and endogenetic disclosure. We argue that demand for financial reporting and disclosure arises from information asymmetry and agency conflicts between managers and outside investors.Basing on analyzing the background of disclosure in china, the paper find some existent important problems:The information of disclose become formalistic and lack a substantial contents, preference disclosure, the false information disclose, the information disclose insufficiency, annual report complement with multifarious correct, the information disclosure supervision weak etc. .The kernel of capital market order is to maintain market transparency. Transparency can help to improve the corporate governance through providing the opportunity to learning from each other. Improving transparency of listed company need to strengthen institutional system of capital market. After thoeritical analysis this paper illustrates the five methods to consummate the capital market order.This paper summarized the measures of transparency and evaluated the merit and shortcoming of these measures. The shortage of the measures of transparency has been an important bottleneck that restricts empirical study. Researchers use several proxies for this variable, including management forecasts, and metrics based on the AIMR database, and self-constructed measures. However, each approach has its limitations.Using the principal components method, this paper has designed the transparency index as measure of transparency, the index considered four factor of disclosure: sufficiency, reliability, timeliness, clarity. with the result of checking by SHENZHEN STOCK EXCHANGE, the two measure have been used in empirical study in this article. This enables researchers to conduct more powerful tests of motivations for and consequences of voluntary disclosure.According to the corporate governance theory, perfect corporate governance is dependent on linking the internal mechanism to the exterior mechanism. The disclosure transparency is a collective node of the internal mechanism and the external mechanism. It can coordinate the internal mechanism and the external mechanism. It is also important to recognize that the governance of firms is exercised through a portfolio of governance mechanisms, and so it is important to understand potential interactions between mechanisms.Corporate governance and disclosure transparency are interactional. On the one hand,corporate governance influence the decision about disclosure, on the other hand, disclosure transparency have important effect on governance, because increasing transparency can improve the governance mechanism through regulating behavior of controlling shareholders.This article at first time study on question how separating of cash flow right from control right influence the disclosure transparency of listed company. The control chain of majority shareholder is more long, namely the listed company be placed in the class of pyramid structure more low, enlargement of control power to cash flow power is more significant, company will more incline toward to choose a lower information disclose transparency.Use the data of the listed company in 2004-2005 of SHENZHEN EXCHANGE, this article examined above-mentioned assumption, empirical result and hypothesis are consistent:The company with more deviation in cash flows right from control right,it more inclines toward the lower disclosure transparency. In the Meantime,the paper also has researched the effect of transparency on tunneling. The result has suggested that transparency can restrict the tunneling of majority shareholder.This study examines the hypothesis that corporate disclosure and earnings management are negatively related. To date there is very little research on this topic, either theory- or empirical-based. Current literatures suggest that managers of firms that disclose more information have less flexibility to manage earnings. But, much of the current research on earnings management focuses on detecting abnormal accruals. This paper not only focuses on abnormal accruals but also real activity manipulation and below-the-line account.Using data from 2001 to 2005 year of SHENZHEN EXCHANGE, this paper has examined the effect of transparency on earnings management. The results have found that transparency have significantly influence to such earnings management method which can be easily detected such as accruals and below-the-line account, and that transparency have not significant influence to real activity methods. This suggest that although the disclosure transparency have certain aggressive influence to the accounting information quality, still can't completely avoid the manipulation of accounting information.This paper has examined the impact of firm's disclosure practices on the stock return volatility and composition of institutional ownership and reductions in their cost of capital. The empirical results found: firms with high levels of disclosure, and hence low information risk, are likely to have a lower cost of capital than firms with low disclosure levels and high information risk. Studies document that disclosure transparency are associated with stock performance, return spreads, cost of capital, and institutional ownership.