The Relationship Between The Behavior Of Real Controller As Executive Increasing And Decreasing Stock Holdings And Earnings Management

With the development of modern enterprise, the company’s ownership and managementseparation occurred. Separation of ownership and management is in favor of moderncorporate governance on the one hand, it also had a negative effect,that is the principal-agentproblem. The controller of the company taking charge of the company will alleviate theagency relationship between owners and operators as to some extent, but also generate newprincipal-agent problem, that is the agency relationship between the real controller and theminority shareholders. In order to defense or resist other investors’s taking away the right ofcontrol of the company, the real controller may be add the stock holdings; or according toTobin’s Q theory, when the company’s current market price is higher than its real value, thereal controller of the company may sell shares for cash, and then use the cash to proceedingfor other investments. Meanwhile, based on asymmetric information theory, the real controlleras executive makes the biggest shareholders fully grasp the situation of the company’smanagement. As a result,they have more information about the business than other investors,and at the same time, they have the power to manage the company’s earnings. In our country’seconomic environment, concentration of ownership and real controller as executives is awidespread phenomenon in SMEs, and it is also very common that the controlling shareholderof the company adding or selling stocks. So to study the behavior of real controller asexecutive’s increasing or decreasing stocks has practical significance.In this paper, the combination of normative and empirical research methods has beenused,and it combined with the practice of stock holdings of the controlling shareholders oflisted companies’s theoretical analysis and empirical research, and tried to reveal therelationship between the behavior of real controller as executive’s increasing or decreasingstocks and earnings management by analysing the data. In this paper, the principal-agenttheory, signaling theory and the theory of asymmetric information have been used to taketheoretical analysis of the relationship between the behavior of real controller as executive’sincreasing or decreasing stocks and earnings management,and the data from2006to2012has proved that:(1) the real controller of the company as executive will turn off earnings management inthe process of increasing holdings;(2) the real controller of the company as executive will turn up earnings management inthe process of decreasing holdings;(3) there is no significant positive correlation between the size of increasing holdings ofreal controller as executive and earnings management;(4) there is significant positive correlation between the size of decreasing holdings ofreal controller as executive and earnings management.Finally, the paper summarizes the limitations of this study and puts forward somepolicies and proposals to specify the behavior of listed company executives and promotecapital markets for sustainable and healthy development.