Senior Managers' Stocks Adding And Reducing , Earnings Management And Its Economic Consequences

The modern enterprise separation of ownership promoted enterprise development and brought some negative effects which should not be ignored: the separation of control and residual claims and the information asymmetry between owners and executives brought about the enterprise agency problem, Then how to solve the agent problem? Domestic and foreign scholars have done a lot of empirical study on senior managers stocks'holding problem and found that senior managers stocks'holding can solve consignment-agent problem, but senior managers stocks'holding also lead to some negative effects. Existing literature mainly studies the economic consequences of managerial ownership, but the study on the market effects and the economic consequences between managerial holding stocks'change and earnings management is still blank. This paper studied senior managers'stocks changing, earnings management and its economic consequences, for example, how does the markets in response to managerial holding stocks'change? Can it bring about earnings management behaviors when Listed Companies'Senior managers'adding or reducing stocks? If earnings management has been executed, Can the investors identify earnings management? These issues lead to the study opportunity of earnings management behaviors during managerial holding stocks'adding or reducing and its economic consequences.The paper studied on China's senior managers'stocks change practice theoretically and empirically by using specification analysis and empirical study method, attempting to reveal the relations between Listed Companies'senior managers'adding or reducing holding stocks and earnings management, and further to study the market reacts on senior managers'changing holding stocks. This paper used agency theory, signaling theory, theory of asymmetric information to theoretically analyze senior managers'adding or reducing holding stocks behavior, and established three econometric models to study senior managers'adding or reducing holding stocks, earnings management and its economic consequences through descriptive statistical analysis and empirical analysis with 1212 Listed Companies'data as samples during year 2006 to 2009. The conclusions are the following:The market reacts of Listed Companies which senior managers'adding stocks were significantly better than those senior managers didn't change holding stocks, and the market reacts of Listed Companies which senior managers'reducing stocks were significantly worse than Listed Companies senior managers not changing holding stocks.Senior managers'adding or reducing holding stocks would resulted in earnings management behaviors, that is , Senior managers'adding holding stocks would executed"downward"earnings manipulation. On the contrary, senior managers'reducing holding stocks would executed"upward"earnings manipulation.The market would give a positive response to earnings management for senior managers'adding holding stocks and give a negative response to earnings management for senior managers'reducing holding stocks.Finally, this paper proposed a number of policy recommendations to conduct Listed Companies. These studies would provide a theoretical basis and reference to norm senior managers behaviors of listed companies, promote capital markets to develop healthily and sustainably.