Study On The Influences Of CEO Changes On Earnings Management Under Board Supervision Of Listed Companies

In recent years, with the increasing scale of China’s securities market, thefrequent changes of senior executives in domestic listed companies have drawn moreand more attention from creditors, shareholders and other stakeholders. Seniorexecutive change is the result of both internal and external governance of thecompany, identification and removal of the senior executives with poor performanceis deemed as one of the important factors to determine whether the corporategovernance mechanism is effective. At the same time, whatever the motive is, mostlisted companies are unavoidably engaged in earnings management activities. Aspart of the corporate governance, earnings management are largely decided by theirsenior executives after weighing the pros and cons. Meanwhile, after the issue ofnew accounting standard, earnings management have increasingly become the focusof people’s attention. In addition, the board of directors, which is the coredepartment of China’s internal corporate governance, is the key factor that decidesthe changes of senior executives and monitors earnings management, but the boardsupervision mechanism of China’s listed company is generally imperfect, so that theproblem of company agency is prominent and the earnings management problemcan’t be suppressed. Therefore，earnings management becomes the hot issue ofdomestic and foreign researches.This thesis explores the relationship among the board of directors supervison,senior executive turnover and earnings management by using the date about seniorexecutives turnover between2008and2011disclosed by the GTA database. It alsoanalyzes the earnings management activities brought about by different kinds ofsenior executive turnover under different internal governance structures, explores therelationship among the board supervision, senior executive turnover and earningsmanagement, and makes corresponding recommendations. Chapter One summarizesthe relationship among the three aspects based on existing literature on earningsmanagement, senior executives turnover and the board supervision; Then，ChapterTwo expounds the theoretical basis for senior executive turnover, board supervisionand earnings management activities, and also introduces four characteristic methodsfor board supervision, mechanism for senior executive changes, and the definition,methods and measuring method of earnings management, which paves the way for next chapter’s mechanism analysis; Chapter Three applies normative analysis tostudy the influence of board supervision on senior executive changes, the influenceof senior executive changes on earnings management and earnings managementactivities brought about by senior executive changes under the board supervision.Finally, after introduction of the data screening condition, this thesis makes anempirical analysis through multiple regression analysis and binary logisticregression analysis by SPSS software. It examines the research hypothesis, furtherinvestigates the influence of board supervision mechanism on earnings managementactivities brought about by senior executive changes. It also proposes thecountermeasures and suggestions for specifying China’s earnings management,mainly comprising: enhancing the post-supervision of earnings managementactivities, improving the structure of the board of directors, strengthening theconstruction of the accounting system, and providing complementary theoreticalbasis for improving the internal governance structure of listed companies.The empirical results show that:(1) there is a negative correlation betweensenior executive changes and earnings management, indicating there are activities ofreducing the profit at the same year when senior executive changes happen;(2)among the four characteristic methods of the board supervision system, small sizeof the board, high proportion of independent directors and the separation ofchairman and general manager are negatively correlated with earnings management,proving that the three factors play an inhibitory effect on the earnings managementactivities brought about by senior executive changes;(3) more board meetings, theseparation of chairman and general manager are positively correlated to seniorexecutive changes, but the board size is negatively correlated with senior executivechanges.