Non-actual Controllers and the Value Relevance of Earnings
The actual controller,a"key minority"in listed companies,plays a crucial role in improving the level of corporate governance and enhancing the quality of listed companies.With the basic establishment of China's multi-level capital market,corporate ownership structure has become increasingly diversified,and the emergence of companies without actual controllers has attracted significant attention from investors.This phenomenon is more common in developed western capital markets,where listed companies typically exhibit highly dispersed ownership structures.To a certain extent,the growing number of Chinese companies without actual controllers is a natural phenomenon in the process of the capital market's transition from the"emerging and switching"stage to the mature market.Companies without an actual controller exhibit different forms,including absolutely dispersed equity type,relatively dispersed equity type,shareholder balance type,and upper-level shareholders without actual controller type.The non-actual controllers lead to the restructuring of corporate governance models,which exerts a certain impact on corporate behavior.Based on the above considerations,what impact do non-actual controllers have on the value relevance of earnings?Based on the perspective of corporate value relevance,this paper chooses the China's A-share non-financial listed companies from 2007 to 2021 as samples to examines the impact of non-actual controllers on value relevance of earnings.The research findings indicate that the net earnings of non-actual controllers companies have less value relevance than that of companies with actual controllers.The mechanism test shows that the non-actual controllers increase agency problems between shareholders and executives as well as raise operating risks,thereby reducing the relevance of earnings value.Senior executives'deviant risk-taking behavior significantly enhances the negative impact of having non-actual controllers on the value relevance.The net earnings of non-actual controllers without controlling shareholders is lower than that of non-actual controllers with controlling shareholders.The top ten shareholders have affiliated relation in the non-actual controllers,which provides convenient conditions for their hidden interests and motives,leading to a decrease value relevance.The participation of state-owned equity in the top three and top five shareholders without actual controllers can improve the value relevance of earnings.The above research conclusions indicate that companies with non-actual controllers currently face significant governance risks,which worsen the quality of earnings information.The non-actual controllers pose serious challenges to the monitoring and supervision of China's listed companies.Based on the research conclusions,this paper provides important implications for improving the modern enterprise system with Chinese characteristics and preventing the governance risks without actual controllers.Firstly,this paper provides a theoretical basis for strengthening the effective supervision of the capital and promoting the healthy development of the capital market.We find that companies without actual controllers tend to have lower value relevance,highlighting the necessity for regulatory authorities to pay attention to such companies in China.Considering that the companies without actual controllers are more susceptible to"Barbaric Invasion"of capital and are more likely to become shells driven by capital interests,regulatory authorities should strengthen effective supervision of such companies,regulate and guide all kinds of capital,as well as provide guarantees for improving the quality of accounting information and achieving high-quality development of listed companies.Additionally,the findings can help external investors gain a deeper understanding of the phenomenon of non-actual controller,enabling them to fully recognize both the governance advantages and governance risks associated with such entities from a micro perspective of financial behavior.This paper provides strong support for safeguarding the interests of external investors and achieving high-quality development in capital markets.
non-actual controllersvalue relevance of earningsagency problemoperating risk
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