Theoretic And Empirical Research On Bank Monitoring Effects Of Earnings Management Of Listed Companies

In the market economy, both listed companies and banks are economic subjects who have independent economic interests and enjoy the right of independent operation. They benefit each other on the basis of financing relationship. Banks are credit institutions that exist to be profitable while listed companies obtain capital by credit. There is a typical credit relationship between them where the principle of honesty and credit maximization is observed. Currently, listed companies in China still do not break the main intermediary loans, securities market supplement financing patterns. This means that the economy in the transition period, the financing structure of China's listed companies is very seriously imbalant in a listed company overreliance on debt financing from banks. On the one hand, with the development of listed companies, banks financing has become increasingly active and fields are more expansive, which plays an active role in promoting development of listed companies; On the other hand, the company's demands for capital require financing from the banks and the return of the loan interest is an important source of bank profits, which shows that both banks and listed companies under market constraints and the game of the two sides form their respective acceptable market conditions, and then complete the financing transactions, two-way selection process. However, due to the fact that earnings management of listed companies is widespread, the existing bank debt protection measures are very poor, the practice of listed companies'evasion of bank debts is common, leading to a large number of bank NPLs. So, do the banks have oversight functions of listed companies with earnings management? The past research papers about earnings management of listed companies have focused on earnings management motives and characteristics of listed company's board of directors, major shareholders and audit opinions from prespective of the internal corporate governance of listed companies. The past theoretical and empirical researches have not addressed the external governance mechanisms related to bank monitoring mechanism of earnings management of listed company.To this end, the paper first frames theoretical models of bank monitoring of earnings management of listed companies, and discusses the theoretical impact factors of bank monitoring of earnings management of listed companies. Then, based on the financial data of non-financial listed companies of China, 2004-2007, the paper deals with the above issues for empirical analysis.The main sections of this paper were as follows:First, the paper has been a more comprehensive literature summary of bank monitoring theory and earnings management theory of listed companies, respectively. Mainly from economies of scale and economies of scope in the industrial organization perspective, the economic theory of bank monitoring commission has been analyzed by introducing the banking market structure, multiple balance, diversification and the internal logic of bank delegate loans monitoring, and the"winners curse"differentiated product information, the relationship between bank competition and bank monitoring. The domestic and overseas theoretic and empirical studies of earnings management of listed companies have focused on several major motivation and internal corporate governance mechanisms and earnings management relationship. Finally, by teasing out the relevant references, the paper has its evolution and time paths, and points out the deficiencies of previous studies.Second, the Game theory framework of banking monitoring of earnings management of listed companies has been established. To begin with, from the single-stage and infinite game models, bank monitoring mechanism of earnings management of listed companies is analyzed theoretically. Secondly, from incomplete information dynamic game of the bank monitoring mechanism, the banks may screen listed companies through the signal display, and through mortgage lending, deposits, and maintaining relationships and loan refinancing of listed companies can effectively monitor earnings management of listed companies. Finally, in the benefit distribution research of cooperative game between banks and listed companies, bank monitoring and the level of non-earnings management of listed companies is related with a positive correlation of the proportion of the benefit distribution of listed companies. If the banks proceed to enhance the proportion of the benefit distribution of listed companies, banks can encourage listed companies not to engage in earnings management and reduce the bank monitoring costs, leading to a"win-win"situation.Third, based on the theoretical collusions of the chapter 4, the paper studies comprehensive governance effect and term structure governance effect from the bank monitoring of earnings management. The relationship between bank monitoring and borrowers'earning management has been studied empirically. Finally, the relationship between mortgage loans, loan types and bank deposits, and listed companies control for free cash flow behavior has been analyzed. Overall research has found that banks can play a monitoring role on earnings management of listed companies.The main innovations of this paper are as follows:First, previous domestic and overseas researches from the theory of financial intermediation have focused on bank monitoring of business issues more generally. The paper put forward a theoretical framework model of external governance structure of bank monitoring of listed companies directly. To begin with, from the single-stage and infinite game models, bank monitoring mechanism of earnings management of listed companies is analyzed theoretically. Under the China's existing system, earnings management of listed companies is inevitable, which is the inevitable results of equilibrium and the corresponding factors (monitoring costs, monitoring efficiency and value of collateral, etc.) affect the equilibrium outcome; in the same time, the paper points out that the bank only increase punishment, improves its corporate governance mechanisms and the relationship banking service and other measures to improve bank monitoring efficiency, and can effectively reduce the level of earnings management of listed companies. Secondly, based on incomplete information theoretical analysis of the bank monitoring and earnings management of listed companies, the paper shows that the banks may screen different types of listed companies through the signal display, and through mortgage lending, deposits, and maintaining relationships and loan refinancing of listed companies, and banks can effectively monitor earnings management of listed companies. Finally, in the benefit distribution research of cooperative game between banks and listed companies, bank monitoring and the level of non-earnings management of listed companies is related with a positive correlation of the proportion of the benefit distribution of listed companies, which means that the sharing proportions of the benefit distribution of both parties in the cooperative game are due to the level of the extent of the parties will pay. If the banks proceed to enhance the proportion of the benefit distribution of listed companies, banks can encourage listed companies not to engage in earnings management and reduce the bank monitoring costs, leading to a"win-win"situation.Second, previous domestic and international researches mainly have focused on earnings management from board of directors of listed companies, shareholder characteristics, audit opinion from the Internal Governance Structure. The paper studies the banks monitoring of earnings management from the External Governance Structure empirically. First, the paper exacts the bank claims from total claims, and especially studies bank debt in the comprehensive governance effect and term structure governance effect based on the banks'short- and long-term debts by using a linear model and the quadratic function model. The results show that the total size of loans, short-term loans and bank reputation and earnings management borrowers have significant negative correlation, which is the size of the total loans and short-term loans larger, higher reputation banks, smaller borrowers'earnings management, indicating that China's banks can monitor effectively the borrowers'earnings management. Long-term loans on the governance of listed companies effects of earnings management is not obvious, probably due to long-term debt accounting for less, resulting in bank debt weaker effects of listed companies. The number of banks can be less related to bank monitoring of earnings management of listed companies. Because there are borrowers'other indirect financing motives (such as IPO, etc.), as the bank deposits can not be a proxy for bank monitoring of the borrowers, the above conclusions and that of foreign literature are essentially similar. Mortgage loans, refinancing loans and loan types fail to exercise any restraining effect on bank monitoring of earnings management of listed companies. Empirical studies basically verify the theoretical research results of the fourth chapter.Third, the existing literature conclusions of the negative correlation between bank debts and free cash flow of listed companies did not consider the characteristics of the claims. The paper studies the relationship among bank mortgage loans, loan type and bank deposits, listed companies'control of free cash flow behavior. Study has found that bank mortgage loans, loan type and bank deposits play a monitoring role on free cash flow control behavior. But the refinancing of listed companies and the manipulation of free cash flow do not show significant correlation, maybe due to relatively low proportion of refinancing loans and the bank weaker effects.The theoretical and the empirical studies of earnings management of listed companies from the perspective of External Governance Mechanism have some value.