Investigation On The Impact Of Related Party Transactions On Earnings Management Based On The Perspective Of Corporate Governance

With the development of China’s securities market, the related party transactions of listed companies in China are becoming more and more significant. This situation is inextricably linked to the facts that our country is still in the early capital markets and the state enterprises are joint-stock reformed by the country. Earnings management and related party transactions are simultaneously found in the capital markets. Related party transactions are often used as a means of earnings management, there must be some relationship between these two items.Many studies showed that China’s internal and external environment cannot effectively constrain the controlling shareholder to manage earnings by related party transactions, which invaded and occupied the interests of small shareholders.There are many factors in the impact of relationship between related party transactions and earnings management. The article investigated the impact of related party transactions on earnings management from the perspective of corporate governance, in order to make recommendations from the company’s internal governance structure to effectively prevent the listed company to manage earnings with related party transactions. In this thesis, we defined the concept of related party transactions and earnings management and conducted a systematic review of the literatures on the correlation among corporate governance, related party transactions and earnings management. Based on the contract theory and the signal theory, combining the analysis on the influence of the five aspects of corporate governance on related party transactions and earnings management, we proposed five hypotheses in our research. Finally, we tested the hypotheses by descriptive analysis, independent sample T-test and multiple linear regressions.The results showed that ownership concentration is positively connected torelated party transactions and earnings management. The related party transactions in state-owned listed companies have a greater impact on earnings management. The size of board of supervisors is independent of related party transactions and earnings management. The proportion of independent directors and senior management ownership is negatively correlated with related party transactions and earnings management. At last, we raised some reform proposals to the corporate governance structure and to the regulatory inside and outside the corporate governance.