The Relationship Between Institutional Investors And The Earnings Management Before Private Equity Placement

As a way of refinancing, private equity placement was presented by the CSRC in 2006. And owing to the special issue object and price, private equity placement has become the most popular refinancing means for the listing corporation in Chinese capital market. Due to it possesses strong flexibility, the earnings management behavior of listing corporation during this special financial period have more characteristics compared with other refinancing means. On the other hand, with the support of related policy, institutional investors have gradually become one of the major subjects of investment in the capital market of our country and it plays a more and more important influence on China’s listing corporation corporate governance. Therefore, this paper focuses on the perspective of private equity placement, in order to analyze the relationship between institutional investors and earnings management.This paper analyzes related literatures among the institutional investors, private equity placement and earnings management, combs the principal-agent theory, information asymmetry theory and institutional investors’ theory, presents the research hypothesis. Meanwhile, based on the 334 listed companies from 2011 to 2013 which carried out the private equity management successfully, this paper also uses the modified Jones model to estimate the earnings management level of the research samples and then through the regression analysis of empirical research to prove the research hypothesis.First of all, with regard to the overall samples for research object, the paper found: institutional investors’ shareholding and pressure resistant institutions investors can be inhibited the earnings management of the listing corporation, but the pressure sensitive institutional investor oversight role is not marked. Secondly, the overall samples are divided into 3 groups according to the issue objects in order to be tested by One-Way ANOVA analysis. The aim of this analysis is prove that the differences of the earnings management among 3 groups. Finally, through further regression analysis with the 3 groups of samples, the paper found: for shareholders directional issuance, institutional investors can play a better inhibitory effect of earnings management. But for external investors and mixed type of additional, institutional investors can not supervise the listing corporation earnings management. The research results of this paper enrich the research of institutional investors, private equity placement and earnings management, and it also can provide references for the Chinese capital market refinancing system and corporate governance.