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Test The Market Reaction To Earnings Manipulation

Posted on:2003-01-07Degree:DoctorType:Dissertation
Country:ChinaCandidate:C H LinFull Text:PDF
GTID:1116360092971011Subject:Accounting
Abstract/Summary:PDF Full Text Request
Along with the development of China capital market, the earnings management or earnings manipulation has become the focus of attention of academics, practitioners and regulators. The existing empirical researches have indicated that earnings manipulation does exist. This dissertation seeks to find evidence of misallocation of invested capital caused by earnings manipulation of listed companies. Firstly, using two separate and distinct methods, I find consistent evidence of significant positive abnormal trading returns from a hedge portfolio based on the magnitude of earnings manipulation. Secondly, by testing the market reaction to the auditor report with non-standard unqualified opinion, I get further evidence to support the hypothesis that investors do not give due reaction to earnings manipulation of listed companies.In this dissertation, four main contributions are provided as follows:1. This dissertation initially explore whether the misallocation of invested capital was caused by earnings manipulation, and provides the evidence that investors do not give due reaction to earnings manipulation of listed companies.2. Suggested by the existing research findings, this dissertation takes two earnings manipulation sources (accruals manipulation and below line items manipulation) into account at the same time. This is different from the former research literatures in this area.3. When the Hedge Portfolio Regression Model (see Abarbanell and Bushee, 1998) was used to test whether the investors see through the earnings manipulation, I add a new variable (standardized rank of the proportion of trading stocks) in it according to the special situation of China stock market. The result indicates that this adjustment is right and can be used as reference by future researchers.4. In order to explore how investors react when the earnings manipulation is obvious, I take the former research results as reference and test the market reaction to the non-standard unqualified auditing opinion. This experience can be used as reference by future researchers as well.
Keywords/Search Tags:earnings manipulation, market reaction, auditing opinion
PDF Full Text Request
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