The Study Of The Relation Between Characteristics Of Executive In Family Firms And Earnings Management

Since the reform and opening up of China, the government has encouraged andsupported the development of the private economy. As an important part of the privateeconomy, the family business also has a rapid development and growth, and is increasinglybecoming an important part of our national economy. Since entering the21st century, manyfamily businesses already have a considerable scale with a trend of becoming groups andhaving an international development, and even become the industry’s leading enterprise.However, the widespread phenomenon of earnings management in listed companies inChina are not uncommon in the family businesses, and some academic studies even foundthat family firms have more earnings management activities than non-family firms.This paper summarized the academic research results both in China and abroad,selected211family firms from the A-stock shares companies in Shenzhen Stock ExchangeMarket and Shanghai Stock Exchange Market between2007and2011as samples, used themodified Jones model to measure and analyze the earnings management situation inChina’s family businesses, and studied the relation between executives characteristic(executive nature, executive compensation, and executive share ratio) and earningsmanagement in family firms of China.By the description and analysis of the status of earnings management in familybusinesses, the study found that there is a significant phenomenon of earnings managementin the family businesses in our country, and most companies chose positive earningsmanagement, the extent of which is bigger than the extent of negative earningsmanagement. The positive study shows some other results. Firstly, due to the special natureof family firms, the actual control family is more powerful on the control of family firms,and there is not a significant correlation between the executive nature and earningsmanagement. Secondly, because of the different executive nature in family businesses, theproportion of stock shares hold by the executives has polarized. There is a nonlinearcorrelation between the stock share ratio hold by the family executives and the earningsmanagement degree. When the proportion is low, there is a negative correlation betweenmanagement share ratio and earnings management. But when the proportion is high, thereis a positive one. Finally, The family which actually controls the family firm usuallyparticipates in the management of the company. Therefore, the large shareholder is morecapable of supervising the executive and there is less chance that the executive will manage the earnings for their own interests. There is a negative correlation between themanagement compensation and earnings management degree. With the increase of thecompensation, the earnings management degree in family firms is reduced.In the end, according to the results of theoretical research and empirical research, thispaper proposed some suggestions on the management of family businesses.