Empirical Research Of Dominant Shareholder And Real Activities Manipulation

Surplus of the enterprise is the common interest concerned by managers, investors, creditors and government. As there were many cases about earnings management which happened in recent years, we realize that the situation of earnings management is serious and earnings management will lead to serious consequences, such as misleading investors, invaliding the function of capital allocation, and blocking the economic development of social. With the improving of accounting standards and relevant laws and regulations, the frequency of traditional earnings management is less and less. More and more listed companies tend to real activities earnings management, such as sales manipulation, expenses manipulation and production manipulation.Because of the special institutional backgroud of China, the ownership structure of listed companies is turning on obvious features. There are two prominent features of listed companies in China. One of the features is the high ratio of share holding, the other is that the state always be the largest shareholder. Study found that the dominant shareholders would play the role of supervision and they also tend to occupy the interests of minority shareholders. In other words, the dominant shareholders will supervise and influence the decision which is made by managers. Therefore, this paper will analyze the relationship between the dominant shareholder and the expenses manipulation. The empirical study uses the data of listed companies in China.In theoretical part, this paper elaborates related theories of expenses manipulation and introduces the measure model of expenses manipulation which was built by Roychowdhury in 2006. This paper measures the tendency of expenses manipulation by this model and uses the results to describe the current situation of listed companies in China. Then this paper elaborates related theories of dominant shareholder and analyzes the relationship between dominant shareholder and the tendency of expenses manipulation.In empirical part, this paper selects the appropriate listed company to be the object of research and builds up a econometric model basing on the relationship between domiant shareholder and the tendency of expenses manipulation. The results of this research tell that the economic type of dominant shareholder will influence the tendency of expenses manipulation of the listed company and the tendency of expenses manipulation of the state-owned listed company is higher than the listed company which is not owned by state. The results of this research also tell that the higher the ratio of share holding is, the tendency of expenses manipulation is bigger. At last, this paper puts forward relevant suggestions.