Abstract: In recent years, it has become increasingly common in China’s capital market that unrelated shareholders form alliances through concerted action agreements to become controlling shareholders, known as controlling persons acting in concert. How to understand the economic consequences of this phenomenon is an important scientific question. This paper intends to analyze the economic consequences of unrelated shareholders forming controlling persons acting in concert from the perspective of earnings manipulation. Using manipulated accruals to measure earnings manipulation, we find that companies with controlling persons acting in concert exhibit higher levels of earnings manipulation and lower financial report quality, and this relationship is primarily manifested in upward earnings manipulation, and in subsample where minority shareholders form controlling shareholders. Further analysis indicates that in private enterprises and regions with lower degrees of marketization, the impact of controlling persons acting in concert on earnings manipulation is more pronounced. Mechanism tests suggest that controlling persons acting in concert may worsen internal corporate governance and weaken external audit supervision, so as to achieve their goal of manipulating earnings. The consequence test shows the future performance for companies with concerted controlling shareholders become worse.

Key words: unrelated shareholders, earnings manipulation, controlling status, persons acting in concert