Performance Commitments of Controlling Shareholders and Earnings Management
Bibliographic record
Abstract
Abstract Since the Split Share Structure Reform took effect in China in 2005, holders of nontradable shares (controlling shareholders) have had to negotiate with holders of tradable shares (minority shareholders) to gain the liquidity right. In a typical deal reached, the controlling shareholder agrees to pay share compensation to minority shareholders and, in many cases, also pledges to meet a specific firm performance target (performance commitments). Using this reform setting, we examine the impact of performance commitments on earnings management behavior, and find the following results. First, less profitable firms have greater incentives to make performance commitments that help to reduce the share compensation that controlling shareholders have to pay. Second, firms entering into such commitments engage in earnings management to meet the promised performance target when actual performance falls short, and firms facing greater default costs tend to manage earnings more aggressively. Third, depending on the performance metric stipulated in the commitment contract, firms employ varying methods to manage earnings. We also find that firms that rely on earnings management to meet their performance targets display inferior performance in the postcommitment years relative to firms that do not. Overall, our evidence is consistent with performance commitment contracts (with costly defaults) between a firm's controlling and minority shareholders causing incentives for earnings management.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.003 | 0.000 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.000 | 0.000 |
| Bibliometrics | 0.000 | 0.001 |
| Science and technology studies | 0.000 | 0.000 |
| Scholarly communication | 0.000 | 0.002 |
| Open science | 0.000 | 0.000 |
| Research integrity | 0.000 | 0.000 |
| Insufficient payload (model declined to judge) | 0.000 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".