Research On Institutional Investors And Earnings Management Considering The Largest Shareholdel Control

Earnings management as a behavior of adjusting profits and whitewash performance for listed companies has long been difficult to eliminate. However, some scholars believe that a moderate earnings management has its merits, but the use of information asymmetry to adjust surplus is always a kind of self-interested behavior and a kind of "concealment" and "deceit" to the investors who are in the disadvantaged stage of accessing the information. Furthermore, earnings management is often a short-sighted behavior at the expense of long-term interests and is not conducive to long-term development of enterprises.Therefore, inhibition of earnings management is a way of protecting investors, an important aspect the effective corporate governance mechanisms should be ensured. Ownership structure laid the foundation of corporate governance, is an indispensable dimension of measuring the corporate governance mechanisms.Along with the development of China’s capital market and the improvement of the financial system, and the call of China’s securities regulatory authorities of developing of institutional investors extraordinarily in2001, the composition of institutional investors increasingly diversified and has become an important force on behalf of investors. Investment behavior of institutional investors with profession and scale is likely to improve equity structure of listed companies and participate in corporate governance, thereby reducing the likelihood of earnings management.Meanwhile, the controlling shareholder of a listed company ownership structure is another important aspect, is bound to affect the institutional investor possibility of participating in corporate governance. If the controlling shareholder of listed companies is in the super control state, it has absolute control over the other shareholders, which makes it difficult for the institutional investors to supervise its behavior and play the role of corporate governance. Especially when the proportion of stake the controlling shareholder holds reached more than50%, the small investors including the institutional investors cannot form a balanced equity structure to contend against it.In summary, this thesis based on present research results at home and abroad, combining theoretical and empirical research method, analyzed the correlation among institutional investors holding stocks, earnings management and controlling shareholders.This thesis can be divided into five parts:Firstly, introduction. It clears out research motive, significance, contents, methods and positive contribution and prepares for further thorough research.Secondly, literature reviews. Reviewed the literature from three aspects: institutional investors acting mechanism for earnings management, institutional investors acting effect of earnings management, major shareholders control mechanism for earnings management.Thirdly, theoretical analysis. On the basis of agency theory, asymmetric information theory and equity balance theory, Theoretical derivate the relationship between institutional investors and earnings management and the relationship between large shareholder control and earnings management, then further analysis interacted influence of institutional investors and the largest shareholder for earnings management.Fourthly, empirical research. Firstly, introducing the research design, including the proposed the three key research hypotheses, variable design and model building. Secondly, measuring the discretionary accruals by using cross-sectional jones model, at the same time, measuring real activities earnings management from three aspects, sales manipulations, production manipulations and expenses manipulations. Then use both of them as a proxy for earning management, using regression analysis to testify the relationship between institution shareholder and earnings managements. Furthermore, analyzing their relationship under consideration of the controlling shareholders by using grouping test.At last, conclusions. It mainly covers research conclusion, insufficiency and further research directions. Through theoretical analysis and empirical testing, the thesis draw the following conclusions:the shareholding ratios of institutional investors are negatively correlated earnings management, whether accrual earnings management or real earnings management activities. However, in the absolute control of the largest shareholder sample, the impact of institutional investors on accrual management and real earnings management is no longer a significant.The innovation points of the thesis:(1) considering the largest shareholder’s impact when analyzing the relationship between institutional investor and earnings management.(2) measuring earnings management from the two aspects:accrual and real activities, which is comprehensive and scientific.The inadequacies of this thesis:(1) data availability limitation, this thesis only verifies the overall holdings of institutional investors’influence on earnings management, but not analyze the impact of individual institution according to the classification of individual characteristics.(2) endogenous problem, although the thesis tried to control it by using lagged variables in robustness test, but did not take statistical methods such as instrument variables to further control it.