Study On The Impact Of Audit Committee On Earnings Management Of Family Listed Companies

Chinese Securities Supervisory Association had issued "the Notice of Launching Special Work to Enhance Listed Companies Governing Actives" in March,2007.It clearly requested that listed companies should make self-examination and explain if the company has set up subordinate committees under the board of directors,such as nomination committee,salary committee,audit committee,strategic investment committee etc.We can imagine that the issue of this notice may initiate a new tide for listed companies to set up audit committees.However, do listed companies set up audit committees on the purpose of improving financial report quality? The answer is still unknown.Therefore,we take family listed companies as a sample,conduct an empirical study on the relationship between voluntary establishment of audit committees and companys' earnings management level from year 2005 to 2006.The research is divided into two groups:firstly,we take all family listed companies as a sample,examine whether there is a significant relationship between voluntary establishment of audit committees and companies' earnings management level;then we divide the sample into two groups according to whether there are family members on corporate board to test the relationship between the two.Through the establishment of simultaneous equations model,the three-stage least squares (3SLS) test results show that,voluntary establishment of audit committee in China's family listed companies have significant negative correlation with companies' earnings management level.This shows that the voluntary establishment of audit committees in China's family listed companies can significantly reduce the level of earnings management,and it is set up for improving the quality of financial report.In the companies without family members on corporate boards,the test result is also the same.But when the board has two or more family members,the establishment of audit committees have negative correlation coefficient with companies' earnings management level,but the relationship is not significant.