Research On The Relationship Between Natural Person Controlling Shareholders’ Reputation And Earnings Management Of The Listed Private Companies

Earnings management has been an important research subject of company finance. With the strengthening of supervision, listed companies will not only implement the traditional way of accrual earnings management, but also real earnings management, which has higher cost and less risky. Due to the developed countries have good external governance environment, reputation mechanism can effectively constraint the earnings management behavior of managers to maximize interests. At present external governance environment of our country needs to be improved as a whole, and has a bigger difference among regions. This situation makes the reputation mechanism of our country have the overall weaker and regional differences, and loses the constraints of reputation mechanism on managers. The equity concentration of our country makes the controlling shareholders of listed companies have a great influence on the company, so the past literature studied the relationship between the personal characteristics of shareholders and the company’s earnings management. The main problems of this article are:Considering the differences in external governance environment between different regions in our country, does reputation inspire the earnings management of natural person controlling shareholder or constraint the earnings management, and how does natural person controlling shareholders’reputation influence earnings management by different ways.Based on the listed private companies of Shanghai and Shenzhen Exchanges from 2011 to 2013 as samples, this article measured accrued earnings management by the cross section of modified Jones model, added the abnormal operating cash flow, the abnormal product cost and the abnormal costs as real earnings management, took the news media exposure as the proxy variable of natural person controlling shareholders, estimated the indicators of external governance environment by annual average growth rates of the previous data. The paper explored the factors of controlling shareholders’reputation, then analyzed the relationship between natural person controlling shareholders’reputation and both accrued and real earnings management by establishing the multiple linear regression model.Based on the results of the statistical analysis of the natural person controlling shareholders’reputation, the reputation has significant positive correlation with its terms and wealth separately. The results of the regression are:the natural person controlling shareholders’ reputation of the listed private companies has positive correlation with the degree of accrued earnings management and has negative correlation with the degree of real earnings management. Through the further analysis, we found that the natural person controlling shareholders’ reputation of the listed private companies has positive correlation with positive accrued earnings management, has negative correlation with negative accrued earnings management; and the reputation has negative correlation with positive real earnings management, has positive correlation with negative real earnings management.