Improvement in external governance environment can constrain the earnings management，and out of personal gains，the ultimate controller can play a different role towards earnings management． From the ex_x005fternal governance environment perspective，applying dynamic panel data consisting 836 companies listed on Shanghai and Shenzhen Exchanges in the period 2004-2011，we test the impact of external institutional environment on earnings management using system GMM method，and examine the role of listed companys’ultimate controllers．The results show: External institutional environment is negatively correlated with earnings management．External institutional environment affects earnings management differently depending on the characteristics and administrative ranks of the ultimate controllers．Specifically，external institutional environment plays a more significant role in constraining earnings management in state-controlled listed companies compared with non-state-controlled ones．Furthermore，external governance environment seems to be more effective in restraining earnings management in listed companies under central government’s control compared with the ones under the control of regional governments．To conclude，the results illustrate the crucial role that the ultimate controller plays in regulating external governance and earnings management．This study enriches the researches of earnings management，thus contributes to the understanding of the institutional root-cause of the differences in earnings management behaviors among Chinese listed companies．