Managerial Internal Balances And Real Earnings Management: Theoretical And Empirical Research

In the capital market,the separation of the two rights leads to the principal-agent problem.It is the inconsistency of the interests between owners and operators and the internal and external information asymmetry make some managers attempt to whitewash statements by adjusting the profit to maximize their own interests.That is earnings management.The sacrifice of the long-term value of enterprises to meet short-term performance is not only detrimental to the optimal allocation of enterprise and market resources,but also affects the investment decisions of stakeholders.Therefore,restraining earnings management of listed companies is an important measure to protect the healthy development of capital market.As the decision-making body of enterprise production and management activities,managers plays a decisive role in the earnings management behavior.The existing researches mainly focus on the following two aspects.Some researchers regard the managers as a whole without heterogeneity and the others are only concerned about the impact of CEO on earnings management.As a matter of fact,the management decision of enterprise is the result of the whole managers.Due to personal reasons such as salary and reputation,CEO has a strong motivation for earnings management,but the other managers are more concerned about the long-term development of enterprises.They have more long-term vision in the enterprise because of the identity and status different from the CEO's,And also they can participate in the decision-making through their own management authority to inhibite the management earnings behavior of CEO.Based on the basic framework of the principal-agent theory and the high echelon theory,this paper empirically examines the effect of managerial internal checks and balances on the of real earnings management by using the data of 2007-2015 years' A listed companies.The study found that the managerial internal control can significantly inhibit the enterprise's real earnings management;the effect of the mechanism is more obvious in non state-owned enterprises;the better the corporate governance environment(stronger independence of the board of directors,higher proportion of institutional investors holding),the more obvious mechanism of the effect above is.The conclusion of this paper is still true in the robustness test.The conclusion of this paper enriched the theoretical basis and related research of earnings management and opened up new ideas for the management personnel arrangement and the function allocation in the practice of corporate governance.This paper is divided into the following six parts:The first part is the introduction.This section firstly expounds the research background of this article and the significance of this study.Besides,it proposes the research ideas and logical framework and expounds the research methods and structure arrangement adopted in this paper.The second part is literature review and theoretical basis.This section reviews the earnings management of CEO and managers and reviews and summarizes the domestic and international research results.Furthermore,this paper discusses the two main theoretical foundations:the principal-agent theory and the high echelon theory.The third part is hypothesis and theoretical deduction.This part explores the mechanism of managerial internal checks and balances and real earnings management.It also proposes the impact of property rights and corporate governance environment on this mechanism.Based on this basis above,the research hypothesis is put forward.The fourth part is research design.Firstly,this part expounds the situation of the data sources and sample.Secondly,it explains the meaning and measurement of the dependent variables,explanatory variables and control variables and also constructs an empirical model needed in this paper.The fifth part is empirical test.Firstly,this part shows the basic descriptive statistics and correlation analysis for the variables and datas.Secondly,it uses the OLS linear regression method to empirically check the relationship between managerial internal balances and real earnings management by using the data of listed companies from 2007 to 2015.Furthermore,it explores the effect of property rights and corporate governance environment on the mechanism.The sixth part is conclusions and policy recommendations.Firstly,this part illustrates the empirical conclusion on the fifth part.Secondly,it gives some suggestions for strengthening managerial team construction to improve the earnings information.Finally,it points out the research insufficiency and the further prospect.The contribution of this paper is as follows:(1)It enriches the literature research and theoretical basis of earnings management.(2)It pays attention to the heterogeneity of managerial team members,not taking them as a whole without differences.And it tests the impact of managerial internal balances on the real earnings management of Listed Companies in China for the first time.