Structure of Shareholdings and Earnings Management

Abstract

The purpose of this paper is to theoretically explain the relationships between the characteristics of shareholdings in Japanese firms and earnings management. Using a method of game theory, we had two-period model analysis in which the players are a manager and a shareholder. The results are summarized as follows:

(1)Japanese firms tend to manage earnings regardless of the characteristics of shareholdings.

(2)The tendency of earnings management depends upon the characteristics of shareholdings. Firms whose main shareholders are mutual holding firms have the strongest tendency. The firms which are governed by banks have the second strongest. Those which are governed neither by mutual holding firms nor by banks have the weakest.