Enterprise Group,Ultimate Control Sahreholders And Earnings Management

The Enterprise Group existed in the modern market widespread. Effectiveness of internal capital market(ICM) allocation affect the efficiency of enterprise groups significantly. But enterprise group contains too many individual companies to differentiate the members’ various business functions such as the upper control companies achieved higher control rights with less capital cost by using shareholding structures such as multiple voting rights, cross-shareholdings, pyramid structures, etc., which leads to exacerbate two rights separation further and aggravate agency problems in the enterprise group. Earnings management as an external performance of corporate agent problem, would be affected by its internal capital allocation efficiency. So the typical phenomenon of the separation within the group cash flow rights and ultimate controlling right would affect the efficiency of the internal configuration of the capital markets, and furthermore, have an impact on the level of earnings management in the environment of enterprise group? In the background of special institutions, the internal nature of the efficiency of capital allocation and the earnings management behaviors would be different whether the property rights is state-owned enterprises or not?Based on generalizing the existing literature and combining the agency theory, the internal capital market theory and the transaction cost theory, the paper carried out relevant research enterprise groups control large shareholders and earnings management. Based on the data of 2012-2014 A-shareholding listed companies as sample, firstly, the paper tested the impact of level of internal capital allocation and the level of the group’s largest shareholder holding characteristics earnings management; secondly, characterized by constructing holding large shareholders and its internal capital allocation level of cross-variable explore whether major shareholders control features affect group internal capital allocation level the role of the group earnings management; finally, examined the effects of different levels of ownership on the group’s earnings.The empirical results show that: in the surroundings of enterprise groups, the level of internal capital allocation and earnings management has a significant negative correlation; the ultimate control will increase the earnings management behaviors in enterprise groups, while cash flow right able to suppress enterprise group earnings management behaviors to some extent; the higher the separation of ultimate control rights and cash flow rights, the more serious of the phenomenon earnings management. In a further inspection, the paper found that the cash flow rights improving the level of internal capital allocation and inhibit group earnings management; and the separation of ownership and control over the degree it will reduce the level of its internal capital allocation, thereby increasing earnings management. In distinguishing the nature of the property inspection group found that affect the level of state-owned enterprises Capital allocation group earnings management more significant control rights, cash flow rights and the separation of ownership of the internal allocation of capital levels on earnings management is more significant.Through theoretical analysis and empirical tests, the paper had the following revelation on enterprise groups’ development in China:(1) to maintain a high level of internal capital allocation, enterprise groups can inhibit the level of corporate earnings management members of the group companies. Therefore, we should establish and improve relations coordination mechanism between the member companies within the group, the controlling shareholders of listed companies to establish or actual control and restraint mechanisms;(2) improve the enterprise groups internal governance, the ultimate control right of the controlling shareholder should be given a reasonable limit, emphasises on strengthening the responsibility of controlling shareholders to exercise control over a sufficient measure of risk and return.