A Study On The Impact Of Product Market Competition And Corporate Governance To Transparency Of Earnings Information

Transparent earnings information helps investors know more about a company's operating condition, determine investment value, is necessary precondition of investors protection and rational allocation of resources in security market. But that earnings information of our listed companies is not transparent high is an indisputable fact.In order to manage information disclosure of listed companies, China Securities Regulatory Commission has set up a series of rules and regulations. After the internal methods used up, security market problems caused by earnings information lack of transparency happened one after another. This let us to think over that focusing on internal corporate governance, listed companies should be taking into account the external competitive environment of product market at the same time.New competition theory suggests that product market competition as one of the basic external corporate governance mechanisms has direct impact on information disclosure of listed companies, and indirect impact to information disclosure of listed companies through affecting internal corporate governance structure. This paper based on existing research, combined with incomplete contract theory, agency theory, competition theory and the reality of our business background, study the impact of corporate governance structure of listed companies to earnings information transparency and the direct impact of product market competition to transparency of earnings information, and the path that product market competition act to corporate governance structure using theoretical analysis and empirical research method. Using unbalanced panel data,2004-2008 China's stock market listed companies, we test the impact of equity management, board governance, Manager Incentives, Board of Supervisors governance of listed companies to earnings information transparency, and the effects of product markets competition to corporate governance.In this paper we found that:(1) appropriate product market competition can improve the earnings information transparency of listed companies; (2) we studied the effects of governance methods based on equity. we find that controlling shareholders are not the culprit of opaque earnings, uneven equity distribution and collusion between large shareholders is an important factor causing earnings opacity. But through the split share structure reform, increasing proportion of tradable shares can effectively restrict the opaque earnings. General meeting of shareholders, as an important institutional setup for shareholders to exercise their rights, did not play its expected effects to improve the transparency of earnings information; Appropriate product market competition can improve the governance index options, and thus enhance the transparency of earnings information. Product market competition and equity management are complementary in improving earnings information transparency; (3)When we study the effect of Board of Directors to the transparency of earnings information, we found that Board of Directors does not play the role as we expected, had no significant effect to information transparency. But we found some characters of Board of Directors are useful in improving the earnings information transparency, such as stock ratio hold by directors. And independent director and audit committee are not useful as we hope. Product market competition does not influence Board of Directors. Board of Directors is exogenous. But it and Product market competition are complementary to improve earnings information transparency. (4)Different methods to incentive CEO have different influences to earnings information transparency. Cash salary incentive is more effective to improve earnings information transparency in state-owned listed companies than non-state-owned listed companies, while equity incentive is the other way around. As external product market competition increases, state-owned listed companies prefer to incentive managers by raising salaries and thus improve information transparency, while, no-state-owned listed companies prefer to stake CEO by increasing their proportion of stock, thus improving the earnings information transparency; (5) At last, this paper tests board of supervisors'influence to earnings information transparency. We find that board of supervisors can improve earnings information transparency. Members and shareholder supervisor ratio are main reasons improving the transparency of earnings information. Product market competition can improve the level of supervisory oversight, thus enhance the transparency of earnings information;The conclusion enlighten we that external product market competition and internal corporate governance should be considered together to improve earnings information transparency. Putting product market competition, corporate governance, transparency of earnings information into a unified research framework may be more systematic and comprehensive. Results enrich the content of corporate governance study, and are propositional to information disclosure of listed companies, and has important policy reference to equity reforms implementing.