The Influence Of Ultimate Controllers On Earnings Management

Along with the development of capital market in China, some listed companies will modify the financial statements in order to obtain the allotment status or increase the issue price, which will cover up their real performance, so as to mislead investors and damage the interests of the stakeholders. That makes the problem of earnings management of listed companies gradually highlighted, and this problem becomes one of the hot topics among scholars in recent years. With the advancement of our country’s split share reform process, the ownership structure of listed companies has been changing, and these changes can generate some significant impacts on earnings management behavior. Therefore, how to effectively inhibit the earnings management of listed companies and improve the quality of financial reporting has become an urgent problem. Currently, after the split share reform, domestic scholars mainly focused on the impact of corporate governance, ownership structure and board structure on earnings management, few studies concern the influence of ultimate controllers on earnings management. After the split share structure reform, do the ultimate controllers of listed companies still influence earnings management?Based on the above considerations, this article theoretically analyses how the factors of ultimate controllers affect earnings management. Then it selects1036listed companies’ balanced panel data from2008to2011(a total of4144observations) as the study sample of this article, uses cross-section correction Jones Model within intangible assets variable to measure earnings management, and uses multiple regression model to test how the various elements of ultimate controllers influence earnings management. In order to test the robustness of regression models, this paper uses the below-the-line method premeasured earnings management, and arrives at the same conclusion as the original model. To be specific,1) As the control of ultimate controller increase, the range of earnings management will increase;2) As the separation between control and cash flow rights of ultimate controllers, the magnitude of earnings management of listed companies will be greater;3) The companies with state-owned ultimate controller has less earnings management than the companies with non-state-owned ultimate controller;4) Companies whose ultimate controller has changed have more earnings management than companies whose ultimate controller has not changed.The contribution of this paper is to adopt the latest data (from2008to2011) as the sample. This provides new empirical evidence of the relations between ultimate controller and earnings management after the split share structure reform. In addition, this article also studied whether the ultimate controller’s change will influence the earnings management of listed company, and this provides a new perspective for understanding the ultimate controller’s impact on earnings management.