The Empirical Study On The Relationship Between The Board Characteristics And Earnings Management

The capital market in China is in a process of standardizing andimproving. However, it has been a big problem that the financial informationof the Chinese listed corporations is in low quality because of falsifiedaccounts and earnings management. It is almost a result of the internalcontrol between the boards and managers that has happened in the securitymarket as violation to the law in these years. Chinese and foreign expertshave much concern in earnings management and it is also a hot thesis thathow to control the behavior of earnings management and improve thequality of financial information from the aspect of corporate governance(CG).Earnings management is operated in the corporate governance and alsoaffected by CG. Now there are many problems in the corporate governanceand motivate the earnings management. Different composition of the boardhas different characteristics. The characteristics will affect the choice ofaccounting firm and the quality of the financial statements. The board is veryimportant in the CG, especially to supervise the senior managers.The thesis probes into the influence that the board characteristics bringto the earnings management through empirical evidence. Beginning with theChinese reality, it discusses the actual state of CG and how CG will affectthe earnings management. Then, further discussion is taken about the board system development and problems and concludes the characteristics fromthe composition of the board. Meanwhile, the thesis analyzes the meaning,reason and economic result of earnings management. The improvement ofCG is necessary and the behavior of the earnings management should beconstrained from both inside and outside in order to avoid the negative effectof earnings management. The third part of the thesis tests the earningsmanagement by Jones Models based on the theories. DA represents theresult of earnings management and is used as dependent variable in the linermodel. The author select a series of indicators of board characteristics asindependent variable. The author conduct the regression analysis about therelationship from 2002 to 2004 of 442 listed companies in Shanghai Security.The research shows that the composition of the board is much better and thecharacteristics of the board have obvious effect on earnings management.The improvement will enhance the level of CG and help to control earningsmanagement. This proves the necessity and imperative of improving the CGand also supports some experience evidences about how to ameliorate theCG. Therefore, the thesis advances some policy suggestions based on them.