The Effect Of Pyramidal Ownership Sructure On Earnings Management

Along with the private economy’s rapidly expanding, more and more private enterprises join to be listed’s ranks, and become an important social force. Pyramidal ownership structure is widespread in our country’s private listed companies. Because of the separation between the voting right and the cash flow right, some private entrepreneurs establish the private enterprises systems in our security market, through pyramidal ownership structure to control many other companies. Such as Brother Tang’s Delong system, Huachen system, and so on. Along with Yang Rong leaving Huachen, Delong’s collapsed, and other scandles of private listed companies are reported, more and more scholars pay attention to the pyramidal ownership structure and investigate its effect on the companies’ governance.The investors make their decisions based on financial reports of the listed companies, so the financial reports are very important for the investors. But the ultimate controllers will carry on the choice disclosure to the financial reports, in order to hid the occupation through founds appropriation, transactions between related companies and so on. The financial report disclosure has become to be listed’s strategic choice, which is considerable damage to the interests of investors. At present, our country’s legal protection to the minoraty shareholders is poor, and responsibility investigation on the ultimate control shareholders is crack, which are causing these occupation to appear unceasingly. The previous researches about the pyramidal ownership structures used to focuse on the companies’ value and the dividend policy, and the researches about earnings management and information disclosures are mainly under the direct frame. It is rarely to discuss from the aspect of ultimate control shareholders, also to discuss the relations between pyramidal ownership structure and earnings management. Therefore, this paper has the vital significance to study the pyramidal ownership structure how to influence the earnings managements from the aspect of ultimate controller.This thesis bases on the data of our private manufacturing listed companies in Shenzhen Stock Exchange and Shanghai Stock Exchange, during2004-2006, it studies the effect of pyramid ownership structure on the earnings management, which unifies the method through the normative analysis and the empirical analysis. The study finds:(1) The relations between the layers of Pyramidal ownership structure and earnings management is significantly positive correlation. The controlling layers are more, earnings management degree is bigger;(2) The proportion of cash flow right ultimate controllers had is higher, the effect of controlling layers on earning management is lower.(3) Along with the degree of the separation between the ultimate controller’s voting right and the cash flow right increasing, the earnings management has the rise tendency. The research indicates that the existence of the controlling layers and the separation between voting right and cash flow right, under the pyramidal ownership structure of our private manufacturing listed companies, has influence to the earnings management. But as a result of the incentive effects existence, the earnings management behavior will enlarge along with the cash flow power is reduced.