Agency Conflict, Corporate Governance, And Earnings Management

Earnings management is the focus of capital market research, in which of the researches, mostly concentrated in the incentives to manage earnings perspective. Principal-agent conflict is a major cause of earnings management. In order to alleviate the principal-agent conflict, the establishment of corporate governance mechanisms are introduced. Good corporate governance can suppress the level of earnings management, and improve earnings quality. However, in different levels of principal-agent conflict of the company, the level of corporate governance mechanisms are not the same, also the constraints for corporate governance mechanism on earnings management are different. This paper study the correlation and internal mechanism of the principal-agent conflict, combining corporate governance and earnings management.The dissertation chooses listed companies in Shanghai and Shenzhen A stock market during the period through 2012 to 2014 as research samples, sets research variables to reflect the degree of potential agency-principal conflicts, and uses two-step cluster analysis method to classify the research sample into two groups. Based on two samples of different agency conflict, make analysis of differences in the levels of corporate governance and earnings management and research the correlation of corporate governance and earnings management with the empirical approach. With index analysis method to measure the corporate governance level and the Jones model to measure the earnings management, find the result that when the principal-agent conflict degree is high, shareholders tend to set up more perfect corporate governance mechanism, to limit the operating space for earnings management, and effectively reduce the earnings management level. When the principal-agent conflict degree is low, improving the corporate governance mechanism is not effective in reducing the earnings management level. From the perspective of perfecting corporate governance mechanism, provides suggestions to improve the quality of company surplus.