Abstract
This thesis explores the relationship between the corporate governance and earnings management in director’s background and the relationship between the CEO and the controlling shareholder. Moreover, as this study is based on the Chinese market, and there some difference from west market. Therefore, this study will also discuss the difference Chinese market and west market, and improve the Jones model to measure earnings management in Chinese market.This study tend to address the following questions. First, how to measure earnings management for Chinese listed companies using Chinese accounting standard? Second, whether the directors' background influences the firm's earnings management. Third, whether the relationship between CEO and controlling shareholders has an impact on the firm's earnings management, all empirical chapters focus on Chinese listed companies.
Firstly, previous research about earnings management uses the Jones model and various Jones-based model (like the modified Jones model, performance-adjusted model) to measure company's earnings management. These models were developed based on Western accounting principles, which is different from the Chinese accounting standards. There is some measurement error when using these models to measure the company's earnings management in the Chinese market. This study develop a new model based on Chinese new accounting standards, which was issued in 2007. The results indicate that the new model developed is better than previous models used in literature.
Secondly, based on the new model developed about how to measure earnings management for Chinese listed companies, this study investigate the impact of the director's financial background on the company's earnings management. The results show that the effect on the company's accrual earnings management is negative. In contrast, the impact on the company's real activist’s earnings management is positive when the director has some financial education or work experience. These results indicate that directors with financial background tend to help the controlling shareholder to manipulate earnings through real activities rather than accruals.
Finally, this study investigate the impact of the relationship between the CEO and controlling shareholder on the company's earnings management. Same as the above, this study use the new model measuring earnings management. The results show that when the controlling shareholder's shareholding at a low level, there is a conflict between the CEO and controlling shareholder. However, as the increasing of the controlling shareholder's shareholding, the CEO tends to collaborate with the controlling shareholder to manipulate the company's earnings.
This study developed a measurement model more suitable for the characteristics of the Chinese market, making it more accurate and effective. Based on the data analysis of the annual reports of domestic listed companies, the degree and scale of financial manipulation can be detected more effectively. This study suggests that policymakers pay particular attention to the background of directors. A financial background gives directors the ability to help companies manage their earnings. Policymakers also need to pay attention to the relationship between the CEO and the controlling shareholders. The CEO tends to help the company to do earnings management if he/she is working for the controlling shareholder.
| Date of Award | Mar 2021 |
|---|---|
| Original language | English |
| Awarding Institution |
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| Supervisor | Jun Wang (Supervisor), Hailin Liao (Supervisor) & Graham Sadler (Supervisor) |