ABSTRACT:From the share reform on, theseparation between ownership and management of China's modern enterprises promoted the rapid development and progress of enterprises, but at the same time, it also brought the principal-agent problem between owners and operators. So, how can we solve the principal-agent problem? At present, there have been quite a number of domestic and foreign scholars have conducted a lot of research on the executive holding stock problem, and found that senior managers stocks’ holding can solve consignment-agent problem, but senior managers stocks’ holding also lead to some negative effects. Existing literature mainly studies the economic consequences of managerial ownership, but the study on the market effects and the economic consequences between managerial holding stocks’ change and earnings management is not very rich.
This paper used agency theory, signaling theory and asymmetric information theory to theoretically analyze senior managers’ adding or reducing holding stocks behavior, and and established three econometric models to study the relationship between senior managers’ adding or reducing holding stocks and earnings management and its economic consequences through descriptive statistical analysis and empirical analysis. The article also established econometric models to systematically study senior managers’ adding or reducing holding stocks, earnings management and its economic consequences through empirical analysis with Listed Companies’ data as samples during year 2006 to 2011. The conclusions are the following: the stock cumulative abnormal returns of executive’ adding stock holdings listed companies were negative before the announcement, but executive’ reducing stick holdings listed companies had positive stock cumulative abnormal returns significantly before the announcement.Executives’ adding stock holdings listed companies tended to disclose bad news early, or delayed disclosure of good news, and executives’ adding stock holdings listed companies on the contrary. There were negative earnings management behaviors in the process of executives’ adding stock holdings,but positive earnings management behaviors in the process of executives’ reducing stock holdings. We hope that this study can provide references for the securities regulatory authority to strengthened supervise listed companies executives’ behavior and protect other stakeholders.
Keywords: Executives’ adding or reducing stock holdings; earnings management; supervision