The Research Of Institutional Investors’ Effect On Earnings Management Of Listed Companies

Since the Securities Commission proposed ’trans-normal development of institutional investors’ in2000, Chinese investors have made rapid development. By June30,2012, China’s institutional investors hold a total of1,128,706.10273million Yuan in the stock market accounting for65.2%of the whole circulating market. Institutional investors have gradually become one of the major subject of the professional investors in the financial market of our country which cannot be ignored, and have an important influence on China’s listing Corporation.The researches on institutional investors using its the advantages of profession and scale to influence the share price of the listing Corporation and management of the listing Corporation is also gradually increasing.Because of the differences of research methods and angles of the market environment and institutional backgrounds, there exist different conclusions on the study of institutional investors in the listing Corporation. For example, some studies show, institutional investors, as a professional investor, with its strong economic strength and professional skills of supervision and management can improve corporate governance, restrain earnings management, and improve the quality of information disclosure. Other research shows, short-sighted behavior and the frequent trading of institutional investors exacerbate market volatility, lead to the stock pricing errors, and result in the managers of the company conduct earnings management in order to meet forecast earnings. Therefore, this paper selects the perspective of earnings management, to provide new evidence for the screening effect of institutional investors.This paper aims to explore the role of institutional investors in the listing Corporation through the study of institutional investors’effect on earnings management of listing Corporation. During research, the institutional investors will be divided into the pressure-resistant institutional investors and pressure-sensitive institutional investors from the view of the business relationship between the listing Corporation and the institutional investors. In addition, in the research of institutional investors on the impact of earnings management, this paper gives a definition for a more comprehensive way of earnings management. Earnings management will no longer only study accruals, but also extends it to real earnings management.This paper makes empirical studies on China’s institutional investors’ influence on earnings management of listing Corporations. This paper is divided into six parts, and the brief introduction of each part is as follows:The first chapter:introduction. The main research background, problem of this paper and the research idea and research issues are described.The second chapter:theoretical basis and literature review. This chapter firstly defines the concept of institutional investors and earnings management, and then puts forward the two theoretical bases, namely the principal-agent theory and information asymmetry theory. After this, this chapter conducts literature reviews on domestic and foreign research about earnings management, institutional investors and corporate governance, institutional investors and earnings management.The third chapter:the introduction of institutional investors in china. This chapter firstly introduces different types of institutional investors, and then reviews current situation of institutional investors and carries the analysis on the development of institutional investors in china.The fourth chapter:institutional investors and accrual earnings management.The fifth chapter:institutional investors and real earnings management.The sixth chapter:conclusion and policy suggestions.(1) using the modified Jones model to measure the accrual earnings management, this paper found that institutional investors shareholding proportion help inhibit integral accrual earnings management and negative accrual earnings management. Pressure-sensitive institutional investors and positive earnings management is positively related, maybe because they have commercial interests with the listed company.(2) using the model proposed by Roychowdhury (2006) to measure the real earnings management, the pressure-sensitive institutional investors do not to demonstrate the effects of real earnings management, while the pressure resistance of institutional investors have negative effect on real earnings management.The main innovations of the paper have two aspects as follows, firstly this article not only studies the effect of institutional investors on accrual earnings management but also studies the effect of institutional investors on real earnings management; secondly, this article not only studies the relation of institutional investors on earnings management, but also divides institutional investors into two types as pressure-resistant institutional investors and pressure-sensitive institutional investors.According to the empirical results, four proposals are recommended as follows:(1) keep promoting the development of institutional investors;(2) strengthen the diversified development and the structural adjustment of the institutional investors;(3) the capital market regulators should take effective measures to improve the transparency of accounting information disclosure of listing Corporation;(4) strengthen the supervision and management of the listing Corporations’real earnings management behavior.Because the ability limit, the deficiencies of this paper are as follows:(1) the limitations of sample selection.(2) the limitations of model selection on the measurement of earnings management.(3) the random of selection on variables of models.