Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


Agency Costs and Earnings Management: Evidence from China Textile Industry

Author(s): Zijia Huang, Hao Zhang

Under the modern enterprise system where ownership and management are separated, the principal and agent have a game of interests due to their different positions. The agent passes false accounting information to the principal through earnings management behavior. Therefore, it is necessary to study agency costs and earnings management issues and provide reasonable suggestions to protect the interests of the principal. Selecting the financial data and related corporate governance information of listed companies in the textile industry from 2011 to 2020 on Shanghai and Shenzhen stock markets, a multiple regression model was constructed to explore agency costs and surplus from three aspects: equity agency costs, debt agency costs, and control agency costs. The results show that the governance structure of listed companies in China’s textile industry cannot play an effective governance role. The empirical analysis based on the research hypothesis that listed companies with high agency conflicts will restrain earnings management behaviors by improving the corporate governance structure is not reasonable. Among the listed companies in China’s textile industry, those listed companies with high agency cost of control are easier to whitewash their financial reports through earnings management and need to strengthen the protection of the interests of small and medium shareholders through cash dividends and other methods.

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