Motivation Research of Earning Management in Chinese Listed Companies with Controlling Rights Transferred

The phenomenon of dominant majority shareholders is widespread among Chinapsilas listed companies, despite it could reduce the agent cost between shareholders and managers, but major interest conflict often occur between majority shareholder and exterior minority shareholders. Due to ldquothe information asymmetryrdquo between them, majority shareholder could obtain private interest through ldquomanagingrdquo the earning information, which is a low cost manner, so they have the motivation on earning management. This paper explains through the motivation model of earning management that under the governance structure of Chinese listed companiespsila large shareholder, majority shareholders tend to manage the reported earnings one year before transfer to maximize their own interest. While empirical research results in this paper indicate that under the estimation of controlling rights transfer, majority shareholders in positive earning companies have the motivation to uplift earnings so as to increase transfer revenue; however, companies with negative earnings may substantially decrease earnings so as to create a ldquohigh quality shell companyrdquo.