Study Of Earnings Management And Market Reaction Test Based On Corporate Life Cycle

as earnings management directly affects accuracy of accounting earning data in enterprise financial report and then has impact on resources allocation efficiency in capital market, earnings management has been a hot research topic in positive accounting research since1980s. Academic circles from home and abroad have conducted a lot of researches on earnings management and have made abundant achievement. However, most researches focus on motivation, approaches and research methods of earnings management, corporate life cycle and finance features or finance features and earnings management, few of them are centered on the relationship between corporate life cycle and earnings management. Particularly, study the relationship between corporate life cycle and earnings management systematically by combining corporate life cycle, accrued earnings management with real earnings management, and empirical studies of whether investors can identify earnings management behavior commonly existed in listed companies are still deficient.According to existing research, close associative relationship exists between corporate life cycle and its finance features. These finance features varies from corporate life stages; there is also stable relationship between corporate finance feature and earnings management. Earnings management methods and approaches are subject to different finance features. Thus it is obvious that both corporate life cycle and earnings management are closely related to finance features, meanwhile, earnings management methods and approaches changes with corporate life stage. Then whether there is accrued and real earnings management in different life stages of our listed companies? Are there any differences between accrued and real earnings management level and direction. This is the first question discussed by this paper.This paper selects2007-2011relevant data from all listed companies in Shanghai and Shenzhen A share as foundation for estimating accrued and real surplus management variables. By referring to modified Jones model proposed by Dechow (1995), and methods proposed by Roychowdhury (2006) and Cohen (2008), this paper estimates correlated variables of accrued and real earnings management, and has empirical test on differences between accrued and real earnings management level and direction of listed companies at different life cycle stage by constructing multiple linear regression model. Research results indicate that:(1) enterprise at different stage regulates earnings flexibly by accrued and real earnings management modes at the same time;(2) other conditions being equal, for enterprise at different stage, its real surplus management level is higher than that of accrued surplus management level;(3) compared with enterprise at mature period, enterprise at growth period and decline period has higher level of accrued and real earnings management;(4) comparatively speaking, enterprise at growth or decline period regulate earnings up by accrued and real earnings management, while enterprise at mature period regulates earnings down by accrued and real earnings management.Research on the first question proves that listed companies at different life cycles have different accrued and real earnings management behavior and direction difference. Ever since China set up securities regulatory commission in1992, legislation degree in China’s capital market improves, so does effectiveness of capital market. Another mostly discussed question is:whether earnings management behavior of China’s listed companies will affect its securities market effectiveness or not? Whether it will impact resources allocation efficiency of securities market? Whether accounting information users such as investors can identify earnings management behavior commonly exist in listed companies at different life stage? This is the second question this paper is going to discuss.This paper is based on2007-2011relevant data from all listed companies in Shanghai and Shenzhen A share, adopts accrued and real earnings management index which reflect earnings management in listed companies, purchases and holds three different market reaction detection models which are abnormal returns model (s, BHAR model), calendar-time abnormal returns model (CTAR model) and hedge portfolio regression model (HPR model), to inspect whether investors can identify earnings management behavior of listed companies at different life stages from both accrued earnings management and real earnings management. Research result shows that:(1) investors can’t fully identify earnings management behavior of listed companies in China, including accrued earnings management and real earnings management. Comparatively speaking, their ability in identifying real earnings management behavior is stronger;(2) purchasing and holding shares of listed companies in China can result in certain excess return;(3) compared with enterprises at mature period, purchasing and holding shares of listed companies in growth stage result in higher accumulated12-month and24-month excess return. Compared with enterprises at growth period and decline period, purchasing and holding shares of listed companies at mature period can result in higher accumulative6-month excess return.The conclusion above reveals that listed companies at different stages of life cycle utilizes both accrued and real profit management approach to regulate earnings flexibly, but investors can’t fully identify these two approaches and their ability in identifying these two earnings management approaches are diversified. Which causes affect investors to identify different earnings management approaches? This is the third question this paper is going to discuss.This paper takes all listed companies of Shenzhen A share as research sample, selects data during2007and2011as research foundation, construct corresponding multiple linear regression model, and carries out empirical test on causes affect investors to identify different earnings management approaches from information transparency, audit supervision and corporate governance by multiple blend section regression analysis. It turns out:(1) information transparency of listed companies has significant inhibiting effect on negative accrued management, but no remarkable impact on positive accrued earnings management and real earnings management;(2) the independent director system in China has no restrictive effect on company earnings management, including accrued earnings management and real earnings management;(3) no information on strong correlation between type of audit opinion and earnings management, that is to say, investors can’t identify earnings management in listed companies including accrued and real earnings management by type of audit report issued by certified public accountant;(4) whether financial report of listed companies have been audited by Big Four accounting firms, and no certain relationship exists among mobility of their shares, ownership concentration and earnings management, that is, investors can’t identify by corporate governance whether there is statement surplus regulation by earnings management.Research conclusions provide accounting information users such as investors with theoretical guidance in decision making and improve decision quality; it provides basis for formulating accounting principles and speed up improvement and development of accounting principles; it also provides basis for establishing regulatory policy to improve pertinence of these policies. Besides, this paper discusses research achievement in terms of enriching earnings management mode, approaches and earnings management feedback.