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The Research Of Product Market Competition And The Type Of Earnings Management In Listed Companies

Posted on:2015-04-10Degree:DoctorType:Dissertation
Country:ChinaCandidate:H ZhangFull Text:PDF
GTID:1109330434451438Subject:Financial management
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As academic research hotspot, Earnings management have attracted a large number of scholars’ attention. Until the emerge of real earnings management, the research boom of earnings management surge once again. Either accrual earnings management or real earnings management, researches have remained at the level of corporate governance. Extensive literature focused on the relationship among the internal governance mechanisms, the nature of ownership and accrual or real earnings management. However, there are still few researches focus on the operational level of earnings management strategy. Although foreign scholars have stood in a leading position of this area, the studies were pointing at the accrual earnings management, which have not been involved in real earnings management. Whether the product market competition can affect earnings management strategy to achieve the earnings target is still a neglected issue.Product market competition affects earnings management decisions primarily through two mechanisms:corporate governance and information asymmetry mechanism. From the perspective of corporate governance, product market competition as an external governance mechanism can effectively tie the interests of managers, shareholders together, so that managers reduce inertia and exert all his energies. Product market competition is more intense, the lower the private benefits managers could control, therefore, the lower earnings management exists. The competition between companies as a punishment mechanism to be more effective than internal governance mechanisms and external monitoring mechanism, this effect is called " corporate governance effects of product market competition ". On the other hand, product market competition is likely to induce managers’short-sighted behavior, cause the managers engage in earnings management to avoid the existing position under threat.Starting from the perspective of information mechanisms, the impact of product market competition on corporate earnings management behavior is undefined. On the one hand, in a fierce competitive environment, companies will choose not to disclose the information effectively to avoid predatory threats from opponents, that is, the existence of competitive pressure makes the transparency of the earnings reports greatly reduced. The purpose of aggressive earnings management is in order to limit the flowing of information into potential competitors, thus enabling the company from competition. We call this the role of competition in the market "predatory risk effect." On the other hand, the intense market competition will inevitably lead to the capital markets competitor to compete for limited resources. Full and effective disclosure of information will result in a lower cost of capital. With the increasing number of competitors in the industry, the transparency· of earnings report also will increase, therefore, earnings management is naturally lower.The reason of the uncertain impact on earnings management which product market competition exerts is that the product market competition environment is not been refined, that is, just from the concept of competitive intensity can not distinct the mechanism product competition exerting on the earnings management. When managers is making decision on the earnings management, he must be affected by other possible factors in addition to the intensity of competition in product markets. Therefore, it is necessary to carry out multi-dimensional product market competition for the deep research.In fact, the intensity of competition is just a basic dimension of product market competition, which measures the degree of competition between industries and competitive position in the industry, and represents the external competitive environment at the same time. Facing the competitive pressures in varying degrees, companies on the one hand due to the nature of the industries and competitive position in the industry have vary degrees of buffering capacity when face the risk of a drop in demand, and therefore, the degree of decline in earnings are not the same, the intensity of earnings management incentive naturally affected accordingly; on the other hand, the intensity of competition environment provides the different space of earnings manipulation, and exerts the different role in earnings management. Overall, the intensity of competition mainly concerns the impact of the external competitive environment on the intensity of earnings management motivation problem.Single enterprise must choose a target to determine a competitive advantage in the face of competitive pressures, namely to determine the competitive strategy. Differentiation and cost strategy is two typical strategy to achieve a competitive advantage on the market. Each strategy are based on different value chain activities and different resources contracts. The company engaging in differentiation strategy is either technically leading, or have higher customer loyalty, to make to distinguish themselves from competitors. When there is a decline in revenue, the company engaging in differentiation strategy is more likely to save the idle resources to the next period than company engaging in cost strategy.That is, when there is a decline in revenue, the company engaging in differentiation strategy have higher cost stickiness than the company engaging in cost strategy.If the type of competitive strategy does affect the cost stickiness, it means that different strategies have different types of cost behavior. When the company confronts with a drop in demand or decrease in profits, the differences in cost stickiness will cause the difference in the decline of earnings.Whether the difference can result in the difference of earnings management incentives still need to be discussed.Competitive strategy has measured the strategic choices when single enterprise faced with the external competitive pressures, but when these competitive strategies are still unable to achieve competitive objectives, the company must be actively seek to establish a long-term or short-term collaboration with competitors relations in order to achieve the strategic objective. This strategic partnership agreement between several companies called "strategic alliance."Typically, the two types of strategic alliance strategy are capacity competition and price competition. For the capacity competition, the most important thing is to determine whether there is the ability to achieve the goal of increasing production in the next stage to maximize profits. The company needs to obtain financing for capital investment at this time, in order to achieve this goal, the company will focus on the financing market activities, the cooperative and competitive relationship between competing members in the strategic alliance cause the company provide high-quality information to obtain surplus funds in a lower cost; for the price competition, the capacity already has been determined in the last phase, and the main goals in the next stage is to maintain the competitive position within the industry as well as strategic alliances, the cooperative and competitive relationship between competing members in the strategic alliance cause the company choose to disclose earnings report in a lower quality in order to prevent competition opponents focus on their companies.As mentioned above, for the capacity competition companies, the main motivation for earnings management is based on the capital market motivations, while price competition, its earnings management motivation is mainly based on the product market. Therefore, the dimension of competition types mainly discusses its impact on the type of earnings management motivation.This article starts from the perspective of product market competition, and try to study how the operating level factors affect the earnings management decisions in the case of multi-dimensional product market competition. This paper starts from the perspective of product market competition, and extends in the three dimensions:the intensity of product market competition, product market competition strategy and the types of product market competition.This article may be innovative in the following points:1. Different from previous studies, this article starts from the operating level factors, and studies the relationship of product market competition and earnings management. At the same time, take the background of the property into account, the article points out the product market competition exert different mechanism in earnings management.2. Different from previous research, this study subdivides the product market competition into three dimensions:the intensity of product market competition, product market competition strategy and the type of product market competition. At the same time, discuss the mechanism of product market competition on earnings management by analyzing a variety of dimensions, which refine the relevant research on the area of product market competition.3. This paper proposed that competitive strategy result in differences in earnings buffering capacity due to the difference in cost stickiness, which also affect the intensity of earnings management motivation and earnings management strategy. The conclusion of this paper has expanded the field of cost stickiness, and enriched the research of the economic consequences of cost stickiness.
Keywords/Search Tags:product market competition, competition type, competitivestrategy, corporate governance, earnings management
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