Research On The Relationship Between Institutional Investor’s Ownership And Earnings Management

Earnings management of listed companies has been an important part of corporate governance research. Scholars at home and abroad put forward many methods to suppress earnings management behavior and enhance the value of listed companies. This article is from the perspective of institutional investors to consider earnings management. The absolute superiority in the capital, contacts, information and other aspects of institutional investors reduces its monitoring costs, at the same time, specialization promote themselves more efficiently to use the information obtained. Institutional investors participate in corporate governance, supervise management, reduce operator’s earnings management space. This paper argues that the presence of institutional investors to some extent suppresses the earnings management behavior of operator, thereby improving the operating situation. However, the effectiveness of this inhibition depends on the differentiation of agency-principal conflicts of listed companies. In other word, different listed companies have different size, risk, debt burden and profitability, which directly or indirectly leads to agency-principal conflicts. In the listed companies of high agency-principal conflicts, there are serious interests differences between principal and agent. So in the objective conditions of higher information asymmetry and monitoring costs, the agent is possibility to manipulate profits through earnings management for private interests. It is just because of the strong incentives of manage earnings, when agency-principal conflicts are high, they would find ways to modify profits, so the deterrence of the supervisory role of institutional investors is inadequate, and because of institutional investors’ reasons, them inhibition is not as strong as institutional investors in the list companies which has low agency-principal conflicts. Based on the differentiation of agency-principal conflicts, his paper explores the relationship between and institutional investors and earnings management, which is the core of this study.This paper mainly includes three parts from the analysis on the structure: the first part is the bedding of theoretical basis. This portion is much abundant. Including research background, significance and methods, literature review, classification of earnings management and institutional investors in the current status of the development and so on. This part service to empirical research as the role of theoretical basis. The second part is empirical research. Based on previous findings, in accordance with the size of the agency conflict, the samples are clustered into two listed companies, and it compares inhibition degrees from earnings management of listed companies to two types of institutional investors. The last part is the end of the article, which analyzes empirical results, puts forward policy recommendations, and necessarily elucidates inadequate and outlook.According to the study, this paper argues that institutional investors play a positive effect on corporate governance in China. Namely the presence of institutional investors, to some extent inhibits the earnings management of listed companies. But in the lower agency conflict situations, the inhibition is more significant. This phenomenon is caused by many reasons, which is not only of management’s responsibility, but also supervision factors of institutional investors supervision. Therefore listed companies should improve ownership of institutional investors, but to a higher agency conflicts listed companies relying solely on institutional investors to reduce earnings management is not enough. They should be actively looking for an effective way to relieve the agency from the company’s internal, thereby reliving the degree of earnings manipulation management, as the same time institutional investors can play a more effective oversight functions.