Reduction Of Controlling Shareholder And Earning Manipilation

The successful completion of Share Segregation Reform ends the divided state of our stock market. With the coming of full circulation era, Capital market has not had time to play its role of external governance, major shareholders reduction waves follow.Since early2007, a number of major shareholders of listed companies began to frequently reduce shares in the secondary market. Before the reform original non-tradable shareholders generally have higher holding rate, they accumulate larger reduction momentum, if stock market is rising, major shareholders with low share cost have appropriate motives to optimize ownership structure through reduction. But, investors legal protection in our country is unsound, market regulation is relatively lagging, it’s possible that reduction will become a new way to help major shareholders to encroach the interests of minority holders, they may use information advantage to gain higher returns. Literature research shows that the major shareholders reductions indeed produce short-term market wealth effect, does it stem from catering to market sentiment by rationally choosing reduction time or stem from price manipulation before reduction in order to maximize revenue? Based on the view of accrued profit management and real earnings management, this paper discusses whether controlling shareholders reduce shares by catering to market sentiment, or they maximum reduce gains by earnings management. In different stock markets, whether the effect of reduction on earning manipulation has significantly difference?Based on existing research, using298listed companies’ controlling shareholder reduction events from2006to2012, the paper empirically test the above problem, conclusions are as follow:(1) Stock market positively affect reduction controlling shareholders tend to reduce more in bull market, their risk attitude differs in different stock market, and they have certain timing ability;(2)Reduction positively affects accruals and real activities manipulation, showing controlling shareholders have motivation to manage earnings to maximum reduction gains;(3) The effect of reduction on earnings manipulation is more significant in bear markets than that in bull markets, showing the role of earning management as a factor affecting price becomes weaker, in bull markets controlling shareholders tend to cater higher stock price to maximum gains; In bear markets, earning management significantly promote stock price, as reduction scale rises controlling shareholders have more motivation to manipulate earnings...