Multiple large shareholders, earnings management, and operating risk: Empirical evidence from China

Maonan Chen, Yujun Ye

Article ID: 3955
Vol 8, Issue 5, 2024

VIEWS - 1060 (Abstract)

Abstract


This study uses the annual financial data of Chinese A-share listed firms from 2010 to 2020 to investigate the relationship between multiple large shareholders (MLS) and earnings management (EM). After analyzing the samples using the Ordinary Least Squares (OLS) model and endogenous switching regression (ESR) model, the empirical results show that the presence of MLS can increase corporate EM activities and the MLS have a significantly positive effect on EM in both the treatment and control groups. In addition, this conclusion still holds after conducting multiple robustness tests. The cross-section analysis shows that the external audit supervision quality, institutional shareholders, and the uncertainty of the external economic environment have significant impacts on the baseline model results. Lastly, mediation effect analysis shows that the presence of MLS increases the corporate operating risk through EM activities. The conclusions of this paper are critical for policymakers to supervise China’s capital market, improve the level of corporate governance of China’s listed firms, and further promote reform of ownership structure.


Keywords


multiple large shareholders; earnings management; operating risk; corporate governance; mediation effect analysis

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References


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DOI: https://doi.org/10.24294/jipd.v8i5.3955

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