The Influence Of Foreign Residency Rights Of Ultimate Controlling Shareholders On Earnings Management

Financial reporting of high-quality can convey definite information of financial situation,operating results,cash flow and so on,which can lead external investors make investment decisions.However,many listed companies used to control accounting data through earnings management methods such as choosing accounting policies and accounting estimates,changing production behavior and sales behavior.The behavior of listed companies cover up company's real business conditions,misleading investors,and even damaging minority shareholders.Therefore,the problem of earnings management has become a research focus in the field of accounting.At present,China is experiencing the third wave of immigrants,more and more private entrepreneurs obtain foreign residency rights through investment immigrants.In China,the majority of entrepreneurs have the actual control of the enterprise and they can use the larger right to manipulate the accounting earnings.So the ultimate controlling shareholders have greater impact to earnings management.The foreign residency rights of immigrant entrepreneurs may become an umbrella,which allows them to manipulate accounting financial data,transfer assets and other irregularities more bold.They may escape to the foreign residency country in order to aviod legal sanctions after implementing irregularities in domestic.Thus,the ultimate controlling shareholders who have foreign residency rights may have a significant impact to earnings management.This article analysis relationship between the ultimate controlling shareholders of the private listed companies and two earnings management methods which not only extends the research on the earnings management,but also perfects research on ultimate controlling shareholders of private enterprises.Firstly,this paper reviews the relevant literatures on the foreign residency rights,the ultimate controlling shareholders and earnings management.Secondly,we analyze the mechanism and path of ultimate controlling shareholders' influence on earning management based on the theory of principal-agent,contract and asymmetric information.Finally,we put forward the research hypothesis.The empirical part uses 2007-2015non-financial private listed companies in stock exchange of Shanghai and Shenzhen as samples and analyzes the relationship between ultimate controlling shareholders' foreign residency rights and earnings management.The empirical results show that ultimate controlling shareholders' foreign residency rights of private listed companies have a significant positive effect on the degree of accrual earnings management and real earnings management,and the positive real earnings management level is improved significantly,and when the ultimate controlling shareholders' residence country does not sign extradition treaty with China,the degree of real earnings management significantly improved.