An Empirical Study On The Relationship Of Managerial Ownership And Discretionary Accruals Of Private-Owned Listed Companies

The purpose of this study is to investigate the relationship between managerial ownership and earnings management of private-owned listed companies from 2004-2006, and 1027 samples are selected for this study. Earnings management through discretionary accruals is seen as managers' opportunistic behavior. Finance theory predicts two apparently opposite effects of managerial ownership on managers' incentives. The alignment effect suggests that managers' opportunistic behaviors would be less and firm performance would increase with an increase in managerial ownership. On the other hand, the entrenchment effect suggests that opportunistic behaviors would be more and firm performance would decrease with an increase in managerial ownership.By estimating discretional accruals with Jones model, we test the different influence of alignment effect and entrenchment effect on earnings management using a cubic regression model. And then a result is found that there is a significant cubic relationship between managerial ownership and discretionary accruals. The relationship is significantly negative within low and high regions and significantly positive within intermediate regions of managerial ownership. This result demonstrates the co-existence of alignment effect and entrenchment effect, and the alignment effect is dominant within high and low regions, the entrenchment effect is dominant within the intermediate regions.