Study On The Relationship Of Financial Reporting Transparency, Ownership Structure And Earnings Management

In recent years, with the development of capital market, the problems of earningsmanagement in listed companies are increasingly apparent, which become the focusof studies in theory and in practice. The financial fraud events are the best examplesall over the world. The WorldCom inflated$1.2billion revenues in2001. The Enroninflated$1.6billion profit in income statement in2002. In China, the companies ofQing Minyao, China National Aviation Fuel, Silver Metal and Zheng Baiwen wereinvolved in financial fraud. All the cases are related with earnings management. Withthe increasing financial information distortion, people begin to worry about theinformation disclosure rules of capital market and think about the effective way tocurb earnings management. At present, domestic scholars have done many studies onearnings management, including motivation, measurement and influence factors etc.Some scholars also study the relationship among ownership structure, corporategovernance and earnings management. Based on those studies, we find that financial report quality is the direct object of earnings management. It’s the main channel andbasis to obtain financial information for outside investors. Under the influence ofasymmetric information and pricipal-agent problem, earnings management is rootedin the absence of corporate governance. The key to building governance mechanismis to improve transparency of information disclosure, especially financial reportingtransparency. It reflects the level of governance and contains more information ofstock price and investors’ protection. Thus, it is significant to study on financialreporting transparency and earnings management.Now, the Shenzhen Stock Exchange and some authoritative institutions assessinformation disclosure condition of listed companies every year. Many domesticscholars establish evaluation system by themselves. Information disclosuremechanism is not perfect in our country, the content of voluntary disclosure isdecided by managers based on listed companies’ condition except compelleddisclosure. The quality of financial information is influenced by earningsmanagements of managers and shareholders. By analyzing the relationship betweenfinancial reporting transparency and earnings management, we can explore the way tobuild information disclosure and outside supervision mechanism, protect investors’interest and promote the healthy and smooth development of economy.As a consequence, our study based on asymmetric information theory and pricipal-agent theory, selects sample companies’ relevant data of the Shenzhen StockExchange and Shanghai Stock Exchange in2009and2011, and study the relationshipbetween financial reporting transparency and earnings management with modifiedJones model. Then, we put ownership structure into our model as a mediate variable,propose the theoretical hypotheses, and testify the hypotheses through regressionanalysis. We draw the following conclusions: Firstly, financial reporting transparencyhas the negative influenced on earnings management. Secondly, ownershipconcentration weakens negative influence between financial reporting transparencyand earnings management. Thirdly, balanced concentrated weakens negativeinfluence between financial reporting transparency and earnings management.Fourthly, when the nature of largest shareholder doesn’t play a role in the negativecorrelation between financial reporting transparency and earnings management.Finally, the proportion of institutional investors weakens negative correlation betweenfinancial reporting transparency and earnings management.