The Path Analysis Of External Environment And Corporate Governance On Earnings Management

Since2006, China has implemented the new principles-based accounting standards, the use of fair value, impairment test, commercial substance and so on, left more discretion to management, also provides space for earnings management. In China, the development of external governance environment such as government intervention, market supervision is not perfect, the listed companies always infringe the investors’ legitimate rights and interests through implement the earnings management. How to effectively control the excessive earnings management, and enhance investor protection has become the focus of attention.There are many factors that affect earnings management, but in terms of the institutional level, including external environment and internal governance mechanisms. This article is based on a structural equation model, by selecting a sample of2413observations from2007to2009, to study the effect of internal and external governance mechanisms on earnings management.The results showed that the external environment, ownership structure, firm characteristics and executive compensation plays a significant effect on earnings management. Among them, executive compensation is the incentives to trigger earnings management, managers have an incentive to manipulate earnings in order to pursue their own maximum interests; equity excessive concentration is also an important factor, controlling shareholder may order to obtain more control benefits to earnings management; Of course, the external environment will have an impact on earnings management, the smaller degree of government intervention, the lower level of earnings management. Meanwhile, the impact of external environment and ownership structure on earnings management separated by the executive compensation:On the one hand, the external environment and the shareholding structure have a direct impact on the degree of earnings management; On the other hand, the external environment and the shareholding structure plays an indirect inhibitory effect on earnings management by executive compensation.