In LSSerializer javadoc, it's written:
If the parameter "entities" is set to true, EntityReference nodes are serialized as an entity reference of the form " &entityName;" in the output. Child nodes (the expansion) of the entity reference are ignored. If the parameter "entities" is set to false, only the children of the entity reference are serialized.
 
But LSSerializerImpl always output " &entityName;" , I tested DOMSerializerImpl, it serialized node
     [element] tt
       [entity reference] ele
         [element] aa
           [element] bb
             [text] text
to " <tt><aa><bb>text</bb></aa></tt>" when lsSerializer.getDomConfig().setParameter("entities", Boolean.FALSE);
 
So I think LSSerializerImpl is incorrect.