| Financial and accounting report is an important way for listed companies todisclose information. It reflects the company’s financial position and operating resultsof the past year and also be the important basis for investors to make investmentdecisions and for regulatory to oversee the company. But when the listed company’sfinancial accounting reports provided with false, material omission therefrom andmisleading information, the information would seriously affect the interests of usersand the normal operation of the capital market. At this point, the listed company willmake corrections, additions or corrections supplement of the released financial andaccounting reports for the requirements of the company’s management, investors,accounting firms or securities. The so-called annual patch, which is the Chineseunique form of financial restatements, is a remedial action. In recent years, China’sfrequently released annual report patch of listed companies shows the existentdisclosed errors or omissions of previously annual report, which may be amanagement tool to manage earnings, which seriously affected the investors’investment decisions. No matter what forms of financial restatements mean lowquality of the information.Corporate governance plays a very important role on the quality of informationdisclosure. Listed Companies’ financial restatement reflects the existence ofinformation distortion, especially the adjusted earnings, most likely because of theexistence of the listed company’s earnings manipulation behavior. Corporategovernance in the ownership structure, characteristics and Supervisory Boardremuneration incentives are likely to affect the probability of occurrence of financialrestatements. Sound governance can effectively reduce the probability of occurrenceof financial restatements and improve the quality of information disclosure. Theactual controller of listed companies controlled the listed companies through votingrights proxy mechanism, pyramids and cross-shareholdings of listed companies. Theactual controllers stealth after the shareholders. The ’alone big’ phenomenon ofChina’s listed companies is more common. The different types of actual controllershave an impact on the ownership structure, directors and supervisors, incentive pay,and thus will affect the efficiency of corporate governance and the quality ofinformation disclosure.This paper selects the sample of listed companies from CSI A-Share which have published corrections, additions and supplemental corrections from2009to2011intheir Annual Report, based on the relationship between corporate governance,financial restatements and earnings management. Through the study found:(1)non-financial restatement companies, the company which has financial restatement ismore serious about earnings management than which has non-financial restatement,regardless of its actual controller whether is a state or non-state company. Through thesample selected by financial restatement paired samples of non-financial restatementwith corporate governance and financial restatements we found that, in terms ofownership structure, the ownership concentration, the proportion of institutionalinvestors, the actual control of the state-owned and State-owned assets managementdepartment were significantly negatively correlated with financial restatement, and interms of incentives, management compensation and management shareholding andfinancial restatements also significantly negatively correlated. However theSupervisory Board features such as the proportion of independent directors, two jobsconcurrently negatively correlated with financial restatements are related to thefinancial restatements, though there were not significant. As it can be seen from theresults, state-controlled companies have effective governance effect, especially whenit is controlled by state-owned capital management, which can effectively suppressthe occurrence of the behavior of financial restatements and earnings management. |
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