A Positive Research On The Largest Shareholder Holding And Quality Of Earnings Information

The prominent characteristic of ownership structure in Chinese listed companies is the separation between tradable shares and non-tradable shares. The largest shareholder of 70% listed companies is non-tradable state owner shares (including state owner shares and state legal person shares),which appears much concentrative. In the other 30% listed companies, the largest shareholder is non-tradable legal person shares, prompters'legal shares, the tradable shares and ambiguous shares, and they are dispersed. Thus the ownership structure shows two sides (i.e. concentrated one and dispersed one), while the different shareholders have distinct targets. Under such a condition, Chinese listed companies are faced with complicated agent problems.The agent problems raised by the shareholding structure will ultimately have influence on the performances, the governance structure and the behavior of Chinese listed companies. Both the foreign and domestic scholars have studied the related problems in China's stock market, but most of those empirical researches are limited in the relation between ownership structure and performance. Only few scholars have given their attention to a broader field, so it's fewer to study enterprise ownership structure in the angel of controlling share of the largest shareholder. The earning information is provided by the managers, and its reliability degree is affected by operating motivation and action of the limited rational managers. And the running action of managers is affected by mode of the large shareholder performing rights in certain ownership structrue, so the controlling share of the largest shareholder is related with the earning information quality. Considering the above backgrounds, this paper tries to use the agent theory and the shareholding structure in 2000-2005 to connect the relations between the ownership concentrations and constitutes and the quality of earnings information.Based on the concerning literatures, this paper uses a method combined the normative analysis and the empirical analysis, the qualitative analysis and the quantitative analysis, the comparative analysis and the integrated analysis. This paper consists of the following seven parts:Chapter one, introduction. The research background and purpose are first introduced. Then, the study method and the structure arrangement are discussed. Chapter two, literature review. After reviewing related literatures, it is found that now the rearch on the relaion between the laregest shareholder holding and erterprise performance is not profound both in the rearcch method and the choice of evaluate index, and there is big difference on the conclusions. And at the same time, from the angle of the largest shareholder the rearch on the relaion between the laregest shareholder holding and accounting information quality is very little. Only few rearch discusses the faction and the possible action mode of the largest shareholders in company governance and it is to conclude how it affects accounting information. All are in the theory and aren't checked by the data, so the conclusion that when the largest shareholder is state owned share how it influces accounting information quality is unilateral.Chapter three, the influence of the largest shareholders to earning information quality. When it exists the only controlling shareholder and all the other conditions are the same, after simple model analyses of this paper it is can be proved that the expropriation degree of controlling shareholder to outsider investors is lower and the quality of earning information is better in the company in which the company governance protects investor's benefits better, and it also can be proved that the expropriation degree is lower and earning information quality is higher in the company in which the cash flow rights(ownership proportion) percentage of controlling shareholder is higher. According to the proposition concluded from theory model, combined with the detail influence of the largest shareholder's property to proxy problem and investors'benefits protection, and combined with the detail influence of the holding percentage in reality to earning information quality, this chapter brings forward four hypothesis.Chapter four, the empirical analyses between controlling of the largest shareholders and disclosure timeliness of earning information. This section studies the relation between ownership property and holding proportion of the largest shareholders and disclosure timeliness of earning information. In the section it is found that the relation between holding proportion of the largest shareholders and disclosure timeliness of earning information is like an"N"shape, and the empirical result proves the hypothesis. And at the same time it is illustrated that the difference of disclosure timeliness exists if the ownership property of the largest shareholders differs. The disclosure timeliness is worse in the company whose the largest shareholder is state shares, and it is better in the company whose the largest shareholder is state legal person shares, and it is not notable in the company whose the largest shareholder is the other shares.Chapter five, the empirical analyses between controlling of the largest shareholders and conservatism of earning information. This section studies the relation between ownership property and holding proportion of the largest shareholders and conservatism of earning information. In the section it is found that the relation between holding proportion of the largest shareholders and conservatism of earning information is like an"M"shape, and the empirical result proves the hypothesis in part. And at the same time it is illustrated that the difference of earning information conservatism exists if the ownership property of the largest shareholders differs. The samples'earning information conservatism is better in the company whose the largest shareholder is owned shares, and it is not good in the company whose the largest shareholder is state legal person shares and other shares.Chapter six, the empirical analyses between controlling of the largest shareholders and transparency of earning information. This section studies the relation between ownership property and holding proportion of the largest shareholders and transparency of earning information. In this section it is found that the relation between the holding percentage of the largest shareholders and transparency of earning information is like an"И"shape, but not like the hypothetical"N". And at the same time, it is illustrated that the difference of earning information transparency exists if the ownership property of the largest shareholders differs. The transparency of earning information is high in the company whose the largest shareholder is owned shares, and it is lower in the company whose the largest shareholder is state legal person shares and other shares. So it is illustrated that the earning information transparency is better in the former than in the latter.Chapter seven, conclusions. This section is the conclusion of this paper, and clarifies the logic relation of the former conclusions, and analyses the practical enlightening significations of the empirical results.On the findings and conclusions, the followings can be found: 1. Now the reduction of possession should not be the most important thing to improve earning information quality. From the empirical conclusions, the companies whose the largest shareholder is state share is better than whose largest shareholder is state legal person shares and other shares in the conservatism and transparency of earning information, except in the disclosure timeliness. And the companies whose largest shareholder is state legal person shares are better in the earning information disclosure timeliness than other shares. So now what should be done to improve earning information quality of listed companies is not reduce the possession of state owned share, but to perfect market order, law system, manage institution and this investor protection mechanism in the process of deepening reform of state-owned enterprises. 2."One Big Share Alone"is not the resource for bad earning information quality, from the empirical conclusions, the timeliness and conservatism of earning information is bad when the holding percentage of the largest shareholder is low and the shares are dispersed. And it is not proper to emphasize too much the right balance between the managers and the largest shareholder. The regression demonstrates: when the holding percentage of the largest shareholder is between 25% and 50%, the timeliness and conservatism trend to be descending. And only when the holding percentage of the largest shareholder gets to absolute controlling shares, the earning information quality is better. So it can be found that"One Big Share Alone"is not the resource for bad earning information quality, on the contrary proper"One Big Share Alone"is better to reduce company proxy costs, and to improve earning information quality, and it is important method to protect the investors'benefits without outsider market protection. 3. There is the serious earning management. From the empirical conclusions of this paper, it is found that the relation between holding percentage of largest shareholders in the listed company and the transparency of earning information is like an"И"shape. And the relation between holding percentage and earning aggressiveness (accounting it with the absolute value of the total profit) is like an"N"shape too. It is to say when the holding percentage of largest shareholders gets to an absolute controlling percentage, the earning management becomes more with the percentage increasing. The earning management of largest shareholder hides the real earning information and running efficiency, which leads the information between controlling shareholders and investors more anisomerous, and which misleads the outsider investors to judge company value and to decide invest, and so it leads the largest shareholders to expropriate the small shareholders.This paper has the following innovations:The first, what this paper studied is the relationship between the largest shareholders and the earning information quality, and it is little studied abroad and only few of which discusses the faction and the possible action mode that the largest shareholders in company governance and to conclude how it affects accounting information. All are in the theory and aren't checked by the data, so the conclusion that when the largest shareholder is state owned share how it influces accounting information quality is unilateral.The secondly, beginning with the expropriation of the controlling shareholders to outside investors, this paper by establishing model analyzes the difference of the expropriation degree caused by the difference of benefits protection of corporate governance and caused by different ownership proportion held by controlling shareholder, and then analyzes the difference about how they affecting the earning information quality. After analyzing the theory, this paper considering of the institutional background and governance structure of listed companies established research hypotheses in a complete structure and then sets the foundation for research.The thirdly, with the help of large sample data, this paper analyzes how the ownership proportion of largest shareholder affects disclosure timeliness, conservatism and transparency of earning information. And by using statistical analysis and multivariate analysis, this paper tests the variation disciplinarian of the disclosure timeliness, conservatism and transparency of earning information with the ownership proportion of largest shareholder, and to find the best ownership structure arrangement of listed companies. And then it proves that"One Big Share Alone"is not the resource.The fourthly, with the help of large sample data, this paper analyzes how the ownership property of largest shareholder affects disclosure timeliness, conservatism and transparency of earning information. The paper tests benefits protection difference lead by the largest shareholders'ownership property and tests the intrinsic affection that the difference brings to the disclosure timeliness conservatism and transparency of earning information. The analysis can offer the empirical evidence about the reduction of procession of state owned share and strategic adjustment of state economy.