Ownership structure, internal control and real activity earnings management

Reasonable assurance of the reliability of financial report is one of the main objectives of internal control. Thus, high-quality internal control should help to improve the quality of corporate's financial report theoretically. In this paper, we examine the effect of internal control on earnings management, which was measured by real activity earnings management. Besides, we further test the moderating effect of ownership structure on the association between internal control quality and earnings management. The results indicate that higher quality of internal control can restrain real activity earnings management. Specially, this restrain function is more obvious in un-stated firms compared to state-owned firms. And the restrain function cannot be found in companies exist separation of corporate controlling right from the right to control cash flow.