Research On Earnings Management Based On Corporate Governance

Recently, there are more and more accounting frauds and serious earnings management, such as the cases of Enron, WorldCom in American and Zhengzhou Baiwen, Yinchuan Guangxia in China. Now there are some scholars who conclude the corporate governance is one of the reasons of earnings management. So, I explore the problem of earnings management from the perspective of corporate governance with the listed companies of China as the study samples.Firstly, I reanalyze the occurrence of the earnings management and attribute it to the deficiency of principal-agent. While corporate governance can solve the deficiency of principal-agent, because effective corporate governance can, to the most degree, coordinate the benefits of the both parties, lower cost of agent and avoid moral risks such as the opportunism. So, as one corporate system, the corporate governance plays an important role in the constraint of earnings management.In the second, I estimate the extent of earnings management by Cross-Sectional Re-Modified Jones Model and IBL Model respectively and select some available variables to describe the corporate governance. Subsequently, I examine the relationship between corporate governance and earnings management. I find that there is higher scale earnings management in the firms that the number of the directors is significantly differed from 9. When there are more than two independent directors, its proportion in the board of directors has significantly negative relationship with the earnings management. The frequency of board of directors is significantly positive associated with the earnings management. The number of the supervisory committee and cleanness of the auditing opinions is negatively associated with the earnings management. The firms who issue H or B shares have much great possibility to manipulate profits by the items blow the line than others. The extent of earnings management is the highest in the firms that the products are in the market between the monopoly and competition.At last, according to the conclusions, I put forward some suggestions to improve the quality of accounting information and some advice to control earnings management.