An Empirical Study on the Influence of Major Shareholders' Control on Enterprise Earnings Management Mechanism: Evidence from the Mediation Effect Test of Related-party Transactions of Listed Companies in Mainland China

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Journal of Central University of Finance & Economics ›› 2025, Vol. 0 ›› Issue (5) : 140-160.

WU Guoding, LI Yixiao

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Abstract

Related-party transactions serve as a significant channel through which controlling shareholders influence corporate earnings management mechanisms.Based on principal-agent theory and information asymmetry theory, this study examines Chinese A-share listed companies from 2004 to 2022 as research samples.Using the mediation effect testing method, we empirically investigate the mediating role of related-party transactions in the relationship between controlling shareholders' control and earnings management, along with its heterogeneity across different ownership types, internal governance levels, and external governance environments.The findings confirm that: The control level of major shareholders is positively correlated with earnings management; Increased control by major shareholders elevates earnings management through expanded related-party transactions, demonstrating the mediation effect of such transactions; The mechanism through which controlling shareholders affect earnings management via related-party transactions exhibits heterogeneity across different ownership types, internal governance levels, and external governance environments.This research introduces related-party transactions into the analysis of how controlling shareholders influence corporate earnings management mechanisms, empirically revealing the operational pathways between controlling shareholders' control and earnings management, thereby expanding corporate agency theory and financial management theory.The conclusions provide theoretical foundations for enhancing corporate governance and regulating related-party transactions and earnings management practices in China's capital markets.

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Shareholders' control / Earnings management / Related-party transactions / Mediation effect

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WU Guoding, LI Yixiao. An Empirical Study on the Influence of Major Shareholders' Control on Enterprise Earnings Management Mechanism: Evidence from the Mediation Effect Test of Related-party Transactions of Listed Companies in Mainland China[J]. Journal of Central University of Finance & Economics, 2025, 0(5): 140-160

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