A Study On The Relationship Between Internal Corporate Governance Structure And Earnings Management

Earnings management has always been an important subject in the numerous domestic and international studies over the years, the related study of earnings management of listed companies has also favored by the scholars and experts. With the establishment and the development of the GEM market in China, the GEM companies’ corporate governance characteristics and earnings management characteristics, significantly different from the companies of Main Board, which attracts domestic scholars, began to study the phenomenon of the GEM companies’ earnings management. Most of previous research results show that the internal governance structure of listed companies has an intimate relationship with earnings management, imperfect corporate governance structure increases the likelihood of earning management. Therefore, this article tries to analyze whether there is a relationship between the internal governance structure and earnings management and what is kind of the relationship, based on the data of the GEM companies.This paper adopts normative research and positive research. After the review of domestic and abroad corporate governance structure and earnings management research, it clarifies the related theory of the GEM listed companies’ internal governance structure and earnings management. Based on the analysis of relationship between GEM listed companies’ internal governance structure and earnings management from in the theory, the paper presents the research hypotheses. In the empirical analysis section, this essay selected the 2009-2010 GEM non-financial listed companies’2011-2012 data as the sample and adopts cross-sectional data to measure the extent of earnings management of the sample companies. This paper uses Lu Jianqiao model to measure earning management, but it does not consider the effect of cost on the project profit, so this paper chose the main business cost fluctuation factor, which is regard as the empirical model. In the empirical analysis part, the paper first analyze the relationship between the four aspects of internal governance structure (namely the ownership structure, characteristics of the board of directors, the board of supervisors and managers) and earnings management respectively, and then regard the four aspects of company internal governance structure as a whole to have a overall analysis, comprehensively research the relationship between it and earnings management.This paper finds that there is a close relationship between the internal governance elements and earnings management. The institutional investor can effectively inhabit the phenomenon of earning management; when the chairman also served as CEO, the incidence of earnings management is more higher, and the independent directors, which failed to exert inhibitory effect on earnings management, is positively related to earnings management; supervisors with relevant professional background can be more timely and effectively to find the opportunism behaviors of company’s management; executive compensation has a positive correlation with earnings management, while the shareholding of the executives is significantly negative related to earnings management. Visibly, unsound internal governance structure is the important cause of the earning management. Therefore, in order to curb the phenomenon of earnings management, regulate the behavior of managers, perfect the GEM listed companies’ corporate governance structure is imperative.