Large Shareholders Controlling, Independent Auditing And The Informativeness Of Accounting Earnings

Whose is the company? Is it the shareholders', or is it the controllers'? It is not a question easily to answer. As everyone knows, voting rights comes from cash flow rights, such as the substantial owners firmly control the decision of the listed companies through controlling chain. Moreover controlling right that is not based on cash flow right is inconstant. For example, the internal controller caused by the missing of owners is always instant. We always preconceive that independent directors of a company would be more trustable, and the financial reports audited by Big4 will be credible than audited by other CPA firms'. However, the relationship between the big investors and outside supervisors--independent auditors and independent directors, can not be simply complemented or substituted. Furthermore, it may be not linear as people usually think about it.Evidences indicate that it is hard to choose one kind of corporate governance institution that is much better than the others, and there are not constant controllers in the chain of corporate governance. So if the capital market is effect, the power of different forces and the reasonability of the institution will be reflected by the stock prices.This study based on the summary of relative literatures and the analysis of data, deduces that the main problem of ownership structure in listed companies is large investor controlling, always referred as the conflict between the investors. Meanwhile, we found that the big investors own large voting rights with little investment by pyramid structures or cross-holdings. It means that the large shareholder have the motive to tunneling by control the administrant.If the capital market is effect, based on the two main factors--the stability of earnings and the noise of earnings signal--influence the Earning Response Coefficient(ERC), accompanying with the stock price stability, we can deduce that different ownership structure will contribute different apriority reflections for earnings in short time, the motive of substantial owners will effect the stability of earnings, and the independence of outside supervisors will influence the noise of earnings signal. This study examines the relations among earnings informativeness, measured by the earnings--return relation, the ownership structure and the outside supervisors of listed companies in China. I found concentrated ownership with 45% voting right will get a lowest ERC, and that the higher the divergence rate between cash flow right and voting right, the lower the ERC. Otherwise, the top-10 CPA firms do not result in high auditing quality as prospected, and the independence of directors would not effect.