Research On The Impact Of Internal Corporate Governance Of The Listed Companies On Earnings Quality

Whether Accounting earnings is consistent with the real earnings in economic or not is a debate between economists and accountants. Economists believe that the accounting recognition and measurement can not reflect the true earnings of the entity, and the uncertainty and opportunity costs.etc of accounting data does not meet the economic benefits'concept. So many scholars study in accounting earnings and economic earnings and try to measure the true earnings of accounting entity. And many the different econometric models were made to find the earnings quality, and try their best efforts to improve the quality of accounting earnings information。Accrual accounting information improves the relativity, while it weakens the reliability of accounting information. Receivables, prepayments etc would become the key factors to reduce the earnings quality. The difference between the accounting earnings and the true earnings is greater, and the earnings quality is lower. So, the cash flow will be broken soon. And the financial crisis at the year of 2008 belongs to this situation. Undoubtedly, the major shareholder accounting for funds, related party transactions and financial frauds are important three reasons for lower earnings quality. In terms of Corporate Governance, including the controlling shareholders, Concerted acted parties will adopt the accounting methods including the three above to empty the company for their own interests, and the board of directors and managers to cover up the deteriorating financial situation using the financial fraud or other methods to control profits, so the factors from the corporate governance of listed companies in China can fully explain the reasons for the lower earnings quality.In this paper, I have used both theoretical and empirical research methods. Based on the theory of corporate governance, the whiter make a deep analysis of Chinese listed companies about the main reasons for lower earnings quality. The author believe that the ownership structure, board characteristics, and managers of the organizational model affect the amount of accruals and cash flow bridge between the degree which is called earnings quality. The revised DD model describes the differences between the cash flow and accrual profits. So it's an accurate measure indicator of earnings quality. This article uses the revised DD model as a quantitative measure of earnings quality, using 2006-2010 annual accounting data to calculate the 2007-2009 earnings quality of the listed companies, and then discussing corporate governance affecting degree on the quality of earnings.Explained by theoretical and empirical analysis, I find if there are large related shareholders, the possibility of related party transactions will be larger. The proportion of state-owned shares can prove the earnings quality, and the second largest shareholder of the entity does not balance the largest shareholder. In the terms of the board of directors, board size and earnings quality exist "U"-type structure, and the proportion of independent directors should not be too high to improve the quality of earnings, and if chairman of the board and the general manager is the same person, it will reduce the company's earnings quality. In the terms of manager governance, I find the managers of the salary and incentive equity model did not irritate management to provide high-quality earnings information. Finally, I make a suggestion in areas of the ownership structure, board characteristics and manager governance to increase the earnings quality of listed companies in China.