Does Analyst Look Through The Earning Management Manipulated By Controlling Shareholders—Evidence From The Liberalization Of Restricted Shares

When shareholders have the controlling power, the companies may conduct earning management on behalf of controlling shareholders. The reform of shareholder structure provides an opportunity for controlling shareholders to manage their earnings. When the restricted shares liberalize, the benefit of controlling shareholders is connected with company’s stock price, which motivates shareholders to manipulate the earning in a positive way to realize the benefit in restricted shares liberalization. When the earning management is guided by the benefit of controlling shareholders, some ownership characteristics, such as ownership property, shareholding ratio, separating extent of ownership and controlling right, might influent earning management. On the other hand, when this happens, whether analysts, which play an important part in information transfer, can recognize and announce this shareholder-leading earning management?To study the above problems, we use data from listed companies from Shanghai and Shenzhen stock exchange which have the available controlling shareholders’ lockup data till the end of2012. After empirical analysis based on lots of finished researchers, the results are as follows:1、in order to maximize lockup interest, the controlling shareholders increased the earnings of quarterly financial reports purposely, through both accrued and real earnings management.2、because of the special restriction of state-owned shareholders, the larger shareholding ratio is, the smaller degree of earning management is conducted in the process of liberalization of restricted shares.3、shareholding ratio of controlling shareholders and separation of two rights is connected with accrued earning management positively, but show no connection with real earning management.4、analysts do not reflect earning management in their earning forecasts. Accrued earning management influents the accuracy of analyst forecast in shorter time than real earning management.5、analysts forecast the earning of state-owned companies in a more pessimistically way. Shareholding ratio of controlling shareholders and separation of two rights show no remarkable influence in the accuracy of analyst earning forecast.6、star analysts behave the same as non-star analysts in the forecast of earning management in the process of restricted shares liberalize, and analysts connected with brokers predict no more positively than independent analysts.The main contribution of this paper:1、the paper measures earning management in both accrued and real way, what is more, adding an aggregative indicator which reflects the two earning management method.2、the paper studies the influence of ownership characteristics on earning management in the liberalization of restricted shares, thereby proclaim the controlling shareholders as the leader of earning management.3、this study enriches the area in the ability of analysts to see through company earning management behaviors.