Corporate Governance and Earnings Management - an Empirical Study

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CORPORATE GOVERNANCE AND EARNINGS MANAGEMENT:

AN EMPIRICAL STUDY

BY

Yuan He

1330006039

ACCT

Yaozhen Niu

1330006106

ACCT

A Business Project Submitted to the Division of

Business and Management in Partial Fulfilment of

the Graduation Requirements for the Degree of

Bachelor of Business Administration (Honours)

Submitted to

Dr. Wingsun LI

Beijing Normal University – Hong Kong Baptist University

United International College

April 2017

Contents

Acknowledgement        2

Abstract        3

Introduction        4

Background of the problems        4

Objectives and Significance        4

Literature Review        5

Hypotheses        9

Conceptual framework        9

Methodology        11

Subjects        11

Procedures        12

Sample and data collection        14

Analysis and Results        14

Discussion         19

Interpretation        19

Limitations of the study        20

Recommendations        21

Conclusion        21

References        23

Appendix        25

Acknowledgement

This research paper is a business project submitted to the Division of Business and Management in partial fulfilment of the graduation requirements for the Degree of Bachelor of Business Administration, supported by Dr. Wing Sun LI.

Abstract

Former researchers have examined the influence of corporate governance and earnings management on corporate performance in foreign nations, such as Latin America, Australia and Korea. Similarly, this influence is also worth investigating in Chinese market. As for this paper, researchers aim to find out the relationship among corporate governance, earnings management and corporate performance in the Chinese market. We use the sample of A-share listed Chinese companies in the year of 2015. Our results show that corporate governance in terms of board size and board activity has influence on return on assets (ROA), which are the indicators of corporate performance. In detail, board size positively affects ROA, whereas, board activities negatively impacts ROA. Meanwhile, earnings management cannot mediate corporate performance by total discretionary accruals (TDA). The findings have implications that companies especially large listed ones should stress importance on corporate governance mechanisms to enhance the corporate performance, given that earnings management could not mitigate the conflicts between corporate governance and corporate performance.