Multiple blockholders and earnings management |
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| Institution: | 1. Accounting Department, School of Management, Xiamen University, Xiamen, Fujian 361005, China;2. Xiamen National Accounting Institute, Xiamen, Fujian 361005, China;1. Nanyang Business School, Nanyang Technological University, Division of Banking and Finance, Singapore 639798, Singapore;2. Business School, University of Adelaide, 10 Pulteney Street, Adelaide 5005, Australia;3. Korea University Business School, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul, Republic of Korea;1. School of Business, Renmin University of China, 59 Zhongguancun Street, Haidian District, Beijing 100872, China;2. School of Banking and Finance, University of International Business and Economics, 908 Boxue Building, #10, HuixinDongjie, Beijing 100029, China;3. School of Accounting, Central University of Finance and Economics, 39 South College Road, Haidian District, Beijing 100081, China;1. School of Business, Hunan University, 109 Shijiachong Road, Changsha, Hunan 410006, China;2. School of Administrative Studies, York University, 4700 Keele, St.Toronto, ON M3J 1P3, Canada;3. School of Business, Renmin University of China, 59 Zhongguancun Avenue, Beijing 100872, China |
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| Abstract: | This paper examines the impact of multiple blockholders on earnings management when the main conflict of interest is between controlling shareholder and other shareholders. Using a sample of Chinese listed firms from 2000 to 2017 and controlling for potential sample selection and endogeneity, we find that firms with multiple blockholders tend to have higher earnings management than firms with a single controlling shareholder. The positive impact of multiple blockholders on earnings management is more pronounced when those blockholders are the same type – state or private. Earnings management is also enhanced with more large shareholders and higher relative ownership of other large shareholders to the controlling shareholder. The results are consistent with the cost-sharing hypothesis, where the other large shareholders shoulder the costs of earnings management with the controlling shareholder proportionally, but not the private benefits of control. Further tests show that the positive relation between multiple large shareholders and earnings management is less pronounced in firms with stronger internal or external governance. Overall, our paper demonstrates a potential dark side of multiple blockholders from the angle of financial reporting quality. |
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