Research On The Impact Of Managerial Power On Earnings Management

The reform of state-owned enterprises has been implemented in China.With the continuous progress of the reform, managerial power constantly forms and improves.In fact, the essence of this reform is the process of managerial power that forms and improves. The corporate governance mechanism can’t restrain the managers behaviors.Managerial power can be over the corporate governance mechanism especially in the company where chairman serves as general manager,and general manager resigns for a long time,and the major shareholder of the enterprise has strong occupation motive of interests. From the current situation,We can find that the operation mechanism does not work well in our enterprises.The way that enterprise’s shareholders use to restrict enterprise managers’behaviors is mainly "vote by hand".This results that enterprise’s managements essentially obtain control of the enterprise,and thus the insiders control the company At present, Our laws are not perfect in terms of protecting the interests of small shareholders.The cases of small shareholders’interest being invaded occur frequently.And the legal costs of enterprise’s internal embezzlement are low, which provides a convenient condition for the abuse of managerial power.Earnings management is that the corporate managers adopt accounting methods to arrange transactions or events and change the results of financial report,in order to mislead the interests of business stakeholders to understand the performance of the company. Currently in accordance with the means of earnings management,we can divide earnings management into the following two types accrual earnings management and real earnings management.The former only adopts accounting methods to manipulate earnings,but the later deliberately arranges the transactions or change the transactions to achieve real earnings management which includes discounting sales, manipulating productions, and reducing the necessary expenses. Excessive manipulation of earnings management which managements adopt will reduce the quality of financial statements and further reduce the reliability of the statements,which exacerbate information asymmetry and mislead users.What’s more, the manipulation of earnings management seriously affects the normal operation of the capital market.With the increasing of managerial power,the motivation of power rent-seeking will be more intense.And due to the increasing power,the managers can be easy to implement power rent-seeking.In order to avoid the’angry’ of shareholders,the managements will implement earnings management to conceal their encroachment of the company’s interests.The ways of interest occupation include higher pay, on-the-job consumption and so on.As usual,the high income links to corporate performance in some extent,or managements will be charged with high cost due to shareholders’ angry. It causes that managers encroach the enterprise’s interests in order to maximize personal income.At the same time,they will implement accrual earnings management by selecting accounting policies or accounting estimates in their favor,and implement real earnings management through it will damage the enterprise value. How does the use of managerial power influence earnings management?How does different dimensions of the power structure affect the manner and extent of earnings management?The main contents:The first chapter is the introduction. There are three parts in this chapter. The first part mainly introduces the background and significance of this study. In the second part,we give the definition of managerial power,accrual earnings management and real earnings management, which can make the research clearly understood. The third part mainly introduces purpose and content of this study. The forth part mainly introduces the ideas and frameworks of this study. The fifth part mainly introduces the expected innovations of this study.The second chapter is the literature review. There are four parts in this chapter. The first part mainly reviews relative literatures of managerial power. In the second part, we give the literature review about the relationship between managerial power and accrual earnings management. The third part mainly reviews relative literatures of real earnings management. In the fourth part, we generally comment previous literatures.We analyze the focus and necessity of this study. The third chapter is the theoretical analysis and research hypothesis. There are two parts in this chapter. In the first part, the paper mainly treat managerial power theory and accountability as the basis. We conclude that managerial power leads to the possibility and necessity of earnings management.And we ananlyze how each dimension of managerial power affects earnings management. In the second part,we are based on managerial power theory, accountability and previous researches to put forward the assumptions fo the paper.The fourth chapter is the study design and sample selection. There are three parts in this chapter. In the first part,we describe the choice of the study sample in detail, showing the origin and distribution of the selected sample of this article. In the second part, the variables selected for the study are explained. In the third part, based on the contents of the study and selected variables,we establish an empirical research model.The fifth chapter is the empirical testing and result analysis. There are four parts in this chapter. In the first part, we describe the characteristics of the sample. In the second part, this paper carries out each variable correlation tests,Examining whether there are lines among multiple variables. And we preliminarily analyze the correlation between the variables. In the third part, from the four dimensions of managerial power (structural power, expert power, prestige power, ownership power), this paper carries out the regression between managerial power with earnings management. We analyze the results of the regression.In the fourth part,in order to ensure the robustness of the regression results in this article, the paper finally conducts robustness tests.The sixth chapter is the research conclusion and future research direction. There are three parts in this chapter. In the first part, we mainly explains the conclusions of this study and summarize the results. In the second part, we presente relevant policy recommendations based on the conclusions. The third part describes the deficiencies of this study.And we describe the direction of future research.The main conclusions:Based on the perspective of managerial power,the paper illustrates the influence of managerial power for the earnings management which include the accrual earnings management and real earnings management.To do deep research,the paper selcects seven-year datas from Chinese A-Share listed companies from2005to2011.The paper adopts empirical research by descriptive statistics, correlation analysis and multiple linear regression analysis.In addition, in order to guarantee the robustness, the author also mkes a robustness test. According to the result of regression, this paper concludes as follows:First of all,managerial power has a significant impact on earning management.And various dimensions of managerial power makes a difference to earnings management.Secondly, the larger structural power, the larger the level of accrual earnings management and real earnings management; the greater the authority of experts, the larger the level of accrual earnings management and real earnings management.The prestige power has no significant effect on accrual earnings management.But the higher the prestige power, the greater the real earnings management. Ownership power has a positive correlation with accrual earnings management,and ownership power has a negative correlation with the real earnings management.Finally, state-owned controlling can help limit accrual earnings management and real earnings management from the cost control.There is a significant positive correlation between ROA and real earnings management.The main contributions of this paper:(1)This paper researches the internal relationship between earnings management and managerial power from the respects of the accrual earnings management,at the same time, the author researches the influence of managerial power for real earnings management.(2)We divide managerial power into four dimensions to study and build quantitative indicators.We research how managerial power affects earnings management from four dimensions.