As a crucial means for corporate management to adjust financial reporting data, the impact of earnings management on audit quality not only concerns the effectiveness of internal governance within enterprises but also affects the decision-making of external stakeholders and the efficiency of resource allocation in the capital market. In addition, the behavior of major shareholders who occupy funds, as a typical manifestation of agency problems in corporate governance, is often closely related to earnings management and plays a significant role in the relationship between the two. This paper utilizes data from A-share listed companies in Shanghai and Shenzhen from 2007 to 2023 as the research sample to investigate the impact of earnings management behavior on audit quality.

Xinyi Zhou, Xin Song. The Impact of Earnings Management on Audit Quality: The Intermediary Role of the Occupation of Funds by Major Shareholders. Academic Journal of Business & Management (2025), Vol. 7, Issue 8: 104-119. https://doi.org/10.25236/AJBM.2025.070813.

[1] Dechow, P. M. and Skinner, D. J. (2000). Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators. Accounting Horizons, 14(2), 235-250.

[2] Miettinen, J. (2007). Audit Quality and the Relationship between Auditee’s Agency Problems and Financial Information Quality: Research Proposal. Department of Accounting and Finance University of Vaasa, 1, 33.

[3] Li, S. and Yu, Z. (2006). The Empirical Research on the Relationship between Large Shareholder's Embezzlement of Listed Company's Funds and Corporate Governance //Fifth Wuhan International Conference on E-Business: Integration and Innovation through Measurement and Management vol.2.

[4] Hou, X. (2007). The Impact of Listed Companies' Performance on the Encroachment Behavior of Major Shareholders: Empirical Evidence Based on the Occupation of Funds by Major Shareholders. Industrial Technology Economics, 26(10), 47-52.

[5] Xiao, C. (2021). Private Control, Internal Control and Earnings Management. Management Engineer, 26(4), 61-68.

[6] Healy, P. M. and Wahlen, J. M. (1999). A Review of the Earnings Management Literature and Its Implications for Standard Setting. Accounting Horizons, 13(4), 365-383.

[7] Cheng, Q. and Warfield, T. D. (2005). Equity Incentives and Earnings Management. The Accounting Review, 80(2), 441-476.

[8] Ni, J., Huang, X. and Liu, Q. (2019). Research on the Influence of Auditor's Personal Characteristics on Audit Quality. Journal of Jiangxi University of Science and Technology, 40(6), 134-138.

[9] Tian, Y. H. (2021). A Review of the Literature on the Impact of Auditors on Audit Quality. China Agricultural Accounting, 6, 46-47.

[10] Zhang, L., Ma, Y. and Hu, Y. (2023). Does CEO Duality Worsen or Fosters Audit Quality: Evidence from Chinese Firms? Economic Research-Ekonomska Istraživanja, 36(1), 687-707.

[11] Yang, C. and Liu, Q. (2013). Audit Quality and Earnings Management Method Selection: A Study Based on A-Share IPO Companies. International Business Accounting, 6, 80-86.

[12] Lennox, C., Wu, X. and Zhang, T. (2016). The Effect of Audit Adjustments on Earnings Quality: Evidence from China. Journal of Accounting and Economics, 61(2-3), 545-562.

[13] Lee, H. and Jeong, S. W. T. (2024). Economic Policy Uncertainty, Audit Quality, and Earnings Manipulation. Asia-pacific Journal of Accounting & Economics, 31(2), 269-299.

[14] Zhang, T. and Yu, Y. (2008). Corporate Profits: Real or Illusory?. Finance and Accounting, (6), 64-66.

[15] Zhou, Z. and Chen, J. (2006). Occupation of Funds by Major Shareholders and Earnings Management. Finance and Trade Research, 17(3), 128-135.

[16] Zhang, X. (2010). Analysis of the Quality of Accounting Profits of Agricultural Listed Companies. Finance and Accounting Communication (Part 2), 3, 81-84.

[17] Li, W. (2011). Discussion and Analysis of the Problem of Embellishing Accounting Statements. Economic and Technical Cooperation Information, 11, 88-88.

[18] Fan, X. and Zhang, X. (2005). Means and Auditing Methods for Enterprises to Falsely Increase Profits. Modern Auditing and Accounting, 7, 9-9.

[19] Houston, R. W., Peters, M. F. and Pratt, J. H. (1999). The Audit Risk Model, Business Risk and Audit‐planning Decisions. The Accounting Review, 74(3), 281-298.

[20] Wang, Wen. (2008). Analysis of the Problem of Capital Occupation by Major Shareholders of Listed Companies. Enterprise Vitality, 1, 20-21.

[21] Xu, Y. (2018). Does Rent-seeking Abnormal Audit Fees Affect Audit Quality? Accounting Research, 5, 90-96.

[22] Dong, X. and Sun, W. (2021). Corporate Financialization, Internal Control and Audit Quality. Audit and Economic Research, 36(1), 26-36.

[23] Dechow, P. M., Sloan, R. G., and Sweeney, A. P. (1995). Detecting Earnings Management. Accounting Review, 193-225.

[24] Jiang, G., Lee, C. M. C. and Yue, H. (2010). Tunneling through Intercorporate Loans: The China Experience. Journal of Financial Economics, 98(1), 1-20.

[25] Wang, K. and Xiao, X. (2011). Controlling Shareholders’ Tunneling and Executive Compensation: Evidence from China[J]. Journal of Accounting and Public Policy, 30(1), 89-100.

[26] Liu, C., Ruan, Y. and Zheng, Kai. (2020). Private Placement, Contract Characteristics and the Occupation of Funds by Major Shareholders. Foreign Economics and Management, 42(6), 126-138.

[27] Du, X. and Zhang, Y. (2022). Is There an Optimal Size of the Board of Directors? - Evidence Based on the Occupation of Funds by Major Shareholders. Journal of Anhui University (Philosophy and Social Sciences), 46(2), 87-98.