Abstract: Taking A-share listed companies in Shanghai and Shenzhen stock markets from 2009 to 2013 as samples, this paper tries to examine the role of institutional investors in the governance of earnings management for listed companies. On such a basis, it divides institutional investors into trading investors and controlling investors according to the concept of trading investment subject and controlling investment subject proposed in the new Accounting Standards, so as further to investigate the impact of different types of institutional investors on the earnings management of the listed companies. The findings show that: firstly, the holdings of institutional investors can help to restrain the degree of earnings management of listed companies, which means that institutional investors can play an active role in corporate governance; secondly, the two types of institutional investors in listed companies have different influences on the earnings management of listed companies: the controlling institutional investors can play a positive role in corporate governance, which is manifested as a supervision effect, while the influence of trading institutional investors is not obvious or they will promote the listed companies to increase the degree of earnings management, which is manifested as a coordinated interaction. The results indicate that the holdings of institutional investors can play a positive role in corporate governance and help to understand the important role of institutional investors in the capital market. However, it is necessary to consider the different effects caused by the heterogeneity of the institutional investors, so as to further regulate the governance of the capital market.

Key words: institutional investors; trading investors; controlling investors; earnings management