Research On The Relationship Between Ownership Structure And Earning Management After The Non-tradable Shares Reform

At the beginning of the establishment of China's securities market, stock shares are divided into non-tradable shares and tradable shares. The non-tradable shares account for a lager proportion, and the state owned shares account for a large proportion of the non-tradable shares, so the proportion of tradable share is small. The securities market provides a new method to raise funds. With the development of securities market, the share-trading system has gradually reveals its defects. The aims of non-tradable and tradable shareholders are different, it isn't good for the enterprise development. It results in a special phenomenon:"The same shares with different prices and different rights".Non-tradable share reform is a major change in the history of the China's capital market, it ends the unfair phenomenon between the non-tradable and the tradable. This reform is beneficial for the SEC develop toward the good and healthy direction. After the reform, the ownership structure changed. Non-tradable shares turn into tradable shares, non-tradable share holders turn into tradable shares holders, so the shares price is one of the focus in the tradable shares holders. According to provision of our country law, non-tradable share holders can't sell the shares until the allotted time. To maximize the benefit, non-tradable share holders increase the value of enterprise, foster a good company image by operating the earnings to meet the ultimate purpose of raising shares price. Therefore, it's necessary to analyze the relationship between ownership structure and earnings management in the capital market after the non-tradable reform.Legal person shares holders as a large part in the non-tradable shares play a vital role in the enterprise. Among the legal person shareholders, there are some private enterprise shareholders. They have rich management experience. It is of significance in guiding the development of the enterprise, their main purpose is to increase the value of enterprise, and acquire the investigation benefit. On the other hand, the listed company shell resource is lack, legal person shareholders wish to obtain the shell resource through controlling the listed company.The local government represents the state ownership to supervise and control the enterprise management activity, but they are lack of effective incentive mechanism and regulatory mechanism, so it's not efficient. Meanwhile, the legal person shareholders can supervise the enterprise management activity efficiently. Therefore, the represent of state ownership has an adverse effect on the earnings management to some extent by free riding.The institutional shareholders have professional investment team and rich fund resources, some of them even play a certain role in the management of the enterprises. With the behavior of institutional shareholders change from long-term investment to short-term investment, there exist several motivations to manage earnings.The salary of top executives correlates with the management achievement. The owners judge the managers'achievement by the finance report that is written by the managers, therefore these managers modify the finance report to increase individual income. The owners manage to reduce the managers'earnings management behavior by providing parts of shares besides salary. Let managers be the owners, and get involved in the distribution of profits to reduce the earnings management.Non-tradable shareholders obtain benefit from the increase of net asset. After the reform, the non-tradable shares can list and trade, the main benefit correlates with the stock prize. So non-tradable shareholders acquire profits by the differentials between purchase stocks and sell them.The more shares the majority shareholders have, the lower of the other shareholders restriction power is, and they decide the employment of the top executives. They have a kind of conspiratory relationship with the top executives to manage earnings to maximize their profits.Other shareholders have some restriction effect on the majority shareholders. The proportion is smaller, the power is weaker. Maybe other shareholders have a kind of conspiratory relationship with the top executives, manage the earnings to infringe on the benefits of small and medium investors, other shareholders may get free riding.Based on the empirical study of the relationship of ownership structure and earnings management after the non-tradable reform, and finally draw the following conclusions: the proportion of state shares negatively correlate to earnings management; the legal person shares negative correlate to earnings management; the institutional shares and the non-tradable shares positively correlate with earnings management; the proportion of top executives shares negatively correlate with earnings management, but there's no significant evidence.Base on the research conclusion, the author make the following proposals: Reduce the proportion of state owned shares; increase the proportion of legal person shares properly; improve the structure of institutional shares; encourage the enterprise to adopt plans of stock option; enhance the non-tradable reform; diverse the stock of the ownership reasonably, and strengthen the function of ownership convergence;improve the transparency of information, intensify the external supervision.