Environmental Uncertainty,Institutional Investors And Earnings Management

The business activities of enterprises are closely related to the specific market environment,and the operating environment faced by each enterprise will be different because of the different operation scale and management mode of each enterprise.It is precisely because of the high uncertainty of the external environment and the differences between enterprises that there is information asymmetry between managers,major shareholders,individual investors,creditors and other stakeholders.In such a highly uncertain environment,managers will choose related policies within the range of accounting standards or even beyond the standard to reach their various purposes,such as spreading information on good earnings to external stakeholders,namely: earnings management by mangers.Therefore,from the perspective of specific environment,we can discuss the relationship between environmental uncertainty and corporate earnings management.In addition,research on institutional investors,a method of external corporate governance,can provide new approaches and ideas for solving or alleviating the phenomenon of corporate's manipulating earnings.At the beginning of the 20 th century and under the call of the unconventional development strategy,institutional investors have developed rapidly in the capital market.As a method of external corporate governance,institutional investors are increasingly prominent and have become an indispensable part of China's capital market.As the various impacts of institutional investors on companies have become increasingly important,the researches on their corporate governance functions have been of increasingly great value,one of which is controlling managers' earnings management.So,we discussed whether institutional investors have inhibitory effects on company's earnings management from the perspective of specific environment.Institutional investors are the middle forces between corporate managers and individual investors.Compared with individual investors,institutional investors can collect much more related information base on their strong capital support and big power to supervise corporate managers.In addition,institutional investors can occupy a certain seat in the company's board of directors or supervisors due to their higher shareholding percentage.Based on the phenomenon above,institutional investors can choose to participate in corporate governance even though there is information asymmetry between corporate managers and them.Usually,institutional investors are more willing to be supervisors because of their high shareholding percentage so that they can obtain higher investment returns.What's more,institutional investors tend to have experienced professionals,so they have capital and ability to analyze the specific listed companies to fully play a positive role in supervision.With the increase of the shareholding ratio of institutional investors,their regulatory motivation will be strengthened as to constrain corporate managers to some extent.At the same time,with the growing of the team of institutional investors,they begin to perform important duties of the supervision and management.Above all,institutional investors have gradually become an integral part of the capital market.When the external environment is highly uncertain,the degree of information asymmetry among management,shareholders and other external stakeholders will be gradually increased.In the case of weak external supervision,management is more likely to carry out earnings management activities in order to maximize their own interests.In the case of strong external supervision,the management of earnings management will be subject to more restrictions.When institutional investors hold more shares of invested companies,they will pay more attention to the business situation of the company for their own investment,and use their own professional advantages to collect and identify relevant information and give full play to their external supervision.Therefore,institutional investor ownership can alleviate the information asymmetry among management,shareholders and other external stakeholders to a certain extent,and thus mitigate the behavior of manipulating earnings.On the basis of combing the theory of environmental uncertainty,institutional investor ownership and earnings management,this paper puts forward two hypotheses.The total number of A share listed companies(non-financial sector)in China in 2011-2015 is taken as the research sample,with a total of 7771.Combined with the existing literature,we construct multiple regression models.The results show that the higher the environmental uncertainty is,the higher the earnings management level is.Further research shows that,from the perspective of external corporate governance,institutional investor ownership will alleviate the earnings management behavior under the circumstances of environmental uncertainty.In the case of controlling endogeneity,the research conclusion is still established.Based on the conclusions of this paper,and combining with the characteristics of the development stage of Chinese market economy,this paper puts forward the corresponding policy recommendations.The specific recommendations are as follows: first,improving the company system,establishing and improving the information disclosure supervision mechanism;second,developing institutional investors vigorously;third,improving the legal system and strengthening the strength of legal punishment.