Research On Relationship Between Fund Shareholding And Earnings Management

In recent years,the size of the security investment fund has increased rapidly and earned lots of income.It becomes more and more important in the capital market. The fund investors can participate in the corporate governance and help to optimize the corporate governance structure.This research take the earnings management as a way to see if the fund investors will take part in the corporate governance and affect the relationship between the condition of fund investors and the earnings management.On the basis of a review of fund investment and the earnings management, the thesis analyzes their relationship through the agency theory, the information asymmetry theory, the market efficiency theory and the relevant corporate governance theory.The conclusion is the fund investors will participate in the corporate governance, help to optimize the corporate governance mechanisms and reduce the earnings management.It is negatively associate with the earnings management.Considering the characters of the earnings management of the Chinese corporations, a regression model is set up. It includes three kinds variables such as the condition of the fund investment,the condition of the corporate governance and some control variables. The variable of the condition of the fund investment is consisted of the percentage of the fund shareholding,the power balance of the fund shareholding and the number of the fund shareholding.This variable can better describe the condition of the fund investment. A linear regreesion is conducted on the sample between 2007 and 2009.The results show that the model could better describe the earnings management but the percentage of the fund shareholding and the power banlance of the fund shareholding are both positively associated with the earnings management. The result is opposite to our assumption. The possible reasons are the imperfection of our capital market makes the fund shareholders pursue short-term profit and this motivates the fund shareholders to polish the financial report.In addition, the percentage of the fund shareholding is relatively low, it could hardly balance the control shareholders and will collude with the management instead.The thesis also finds that the number of the fund investors is negatively associated with the earnings management.lt shows that the large numbers of the fund shareholders could mutually restrain each other and hardly collude with the management, so the larger numbers of the fund shareholders will reduce the earnings management. With comprehensive consideration of the results,if we want the fund investors to play its role of better the corporate governance mechanisms,we should develop the capital market, change the fund investors' performance valuation and promote more fund investors.Also, increasing the percentage of the fund shareholding is necessary,this will make the corporation governance better.