Analysis Of Earning Management Based On Internal Corporate Governance And Internal Control

In recent years, many listed companies are supervised and investigated by Securities Regulatory Commission. We can see that a considerable portion of the enterprises using the financial figures to conceal figures of the true financial statement in order to manipulate profit and control stock price. At the same time, there are a lot of research materials which show that in broad sense, the existence of the earnings management in listed companies is widespread. The earnings management directly leads to reduce the relevance and reliability of the financial information,which hinders the resources from getting optimized, misleads investors and other relators to choose the wrong strategy, causes the captital market bad development. Internal governance and earnings management have the same basic theory, which is Principal-agent Theory. This theory causes interaction of them. People need to discuss more deeply about internal governance, to make sure whether they have the ability to restrict earnings management. After that, the policy of a company can be more accurate, and the security market will develop towards the correct direction more rapidly. Furthermore, people should improve the internal control system, to protect legal right of the investors, ensure the truth and reliability of financial information, keep the capital market moving in order.This paper is based on the interaction among internal governance, internal control and earnings management, and on the basis of improving internal control and internal governance, it lists some methods to prevent from excessive earnings management. On the one hand, companies should set up a sound structure of the internal governance, which includes that strengthening the independent character of the board of directors, especially enhancing the effect of the independent directors, optimizing the stock structure of listed companies to reduce the phenomenon of one share dominating exclusively, and enhancing the effect of the supervisory board to establish an independence institution. On the othe hand, companies should also perfect the internal control system, which consists of three parts, establishing manager-market mechanism to encourage and limit their behavior, restraining the phenomenon of the insider control, and definiting the target of the internal control.