The Research Of The Effect Of Institutional Investor’s Holding On The Listed Company’s Earnings Management

ABSTRACT:The earnings management of listed company is always a sensitive issue of corporate governance. The truth of financial statements was contorted by earnings management in a certain extent and the usefulness of accounting information was reduced, which would seriously influence the decision of stakeholders. Recently,institutional investors has been an significant participater in the capital market.Whether the rapid development of institutional investors can restrain the severe situation of earnings management in listed companies or not still be a mystery.Therefore, the paper focuses on the effect of institutional investor on earnings management. Based on the principal-agent theory, the asymmetric information theory, the incomplete contract theory and the corporate governance theory, the paper chooses A-share listed companies in the period of2008-2012as samples, using the multiple linear regression analysis method to test this effect empirically. By classifying the types of institution investors according to the judgment of whether they have commercial relations with the invested firms or not, the paper proceeds to the further check of their concerns in earning management. The empirical results indicate that:The summation of shareholding ratio of institutional investor has a negative relation with earnings management. Different types of institutional investor have different effects on earnings management. Pressure-resisting institutional investors which play an active role in corporate governance could restrain earnings management and the pressure-sensitive institutional investors are opposite. The conclusions of the paper are favorable of guiding the development of institutional investors, enhancing the earnings quality, as well as promoting the formal development of the market.