Study On Ownership Structure And Real Earnings Management Of Litsed Companies

In recent years, real earnings management of listed companies has become a hotissue of theoretical and practical fields. Real earnings management affects data offinancial reporting through management’s attempt to arrange the business activities,which deviate from normal business operations, violating corporate valuemaximization, achieving expected standards of financial reporting, to maximize theprivate benefits of controlling shareholders. It will violate the goal of corporate valuemaximization, reducing the reliability and authenticity of financial reporting andincreasing the company’s agency costs.The ownership structure which determines the allocation of corporate control, isthe foundation of corporate governance, thus determining the company’s agencyrelationships and agency problems. Controlling shareholders possessing the rightscontrol the company major economic activities in decision-making, one of which isreal earnings management. How does the ownership structure effect real earningsmanagement of listed companies? What role does ownership structure play in realearnings management decision-making? And how does it work? Which characteristicof ownership structure effects real earnings management? This article intends toresearch the relationship between ownership structure and real earnings managementof listed companies in China from the types of controlling shareholders, ownershipconcentration and check-and-balance of stock ownership, to answer these questions.In the aspect of types of controlling shareholders, we prove that the types ofcontrolling shareholder impact on real earnings management of listed companies inChina. With the differences of the controlling shareholders’ types, the degree of realearnings management of listed companies differentiates significantly. Whether it isfrom the comprehensive index of real earnings management, or the single indexes, theextent of real earnings management of the state-owned listed companies is lower thanthe private listed companies; further, the level of real earnings management of listed companies of SOEs affiliated to the central government is directly under SOEsaffiliated to the local government (SOELGs). All in all, the extent of real earningsmanagement of SOECGs is the minimum, the real earning management of SOELGs,is in the medium class, the highest is in the private companies. The existence of suchdifferences may be the difference in financial policies, government support,supervision of environmental, and business goal that controlling shareholders ofChinese listed companies faced, resulting in significant differences of motives and thedegree of real earning management, for listed companies of different controllingshareholdersIn this paper, we prove the ownership concentration affects the real earningsmanagement of listed companies. The degree of ownership concentration affectsextent of real earnings management significant differently. The comprehensive indexshows that there is a significant U-shaped relationship between ownershipconcentration and real earnings management of listed companies in China. However,we do not get the same conclusion from single indexes. There is still a significantrelationship between the ownership concentration and abnormal production costs. Butthe relationship between ownership concentration and abnormal cash flow fromoperating activities isn’t show a “U” shape, but a positive liner. Further, there weresignificant differences between the ownership concentration and real earningmanagement of listed companies in the control of different nature of controllingshareholders. In the state-owned listed enterprises, the other three indexes of realearnings management, that is, the real earnings management comprehensive index,abnormal production costs and abnormal discretionary expenses showing a U-shapedrelationship between ownership concentration and significantly in the1%level,except for abnormal cash flow from operating activities. While in the private listedcompanies, ownership concentration, and overall real earnings management indexes,including comprehensive index, abnormal cash flow from operations, abnormalproduction costs and abnormal discretionary expenses have a significant positivecorrelation, rather than U-shaped relationship.In this paper, we prove the check-and-balance of stock ownership does not play an inhibitory effect on real earnings management of China’s listed companies ingeneral. However, there were significant differences between the different sampleswhen we divide the samples depending on the nature of controlling shareholdersdirectly into three groups of SOECGs, SOELGs and private listed companies. ForSOECGs The relationship between real earnings management and check-and-balanceof stock ownership was a significant negative correlation, excepting abnormaldiscretionary expenses was not significant, indicating SOECGs, the second largestshareholders plays a certain supervision role depressing the real earnings managementbehavior of controlling shareholders. For SOELGs, the relationship betweencheck-and-balance of stock ownership and real earnings management is not uncertain,indicating in SOELGs the second largest shareholder did not effectly supervise thecontrolling shareholder, and did not play an inhibitory effect on real earningsmanagement. For the private listed company, the relationship was a significantpositive correlation, indicating that the second largest shareholder in the private listedcompany, not only failed to play its proper role of checks and balances, but topromote the controlling shareholder’s implementation of real earnings managementbehavior.