Earnings Management And Testing On Its Marketing Reaction Of Listed Company

Earnings management (EM) is an issue central to empirical accounting research in USA in the last 20 years. EM occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports either to mislead stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers. The empirical research in EM furthers the academic thoughts of accrual-basis accounting, hastens the development of Generally Accepted Accounting Principles, and enriches the research measures in empirical accounting. Along with the development of China capital market, EM has become the focus of attention of academic, practitioners and regulation. The existing empirical researchers have indicated that EM does exist. However, there are three questions need to be answered that whether misallocation of invested capital caused by EM of listed companies, the market investors can identify EM and they can make decision by used the audit opinion of CPA.Firstly, we define the notion, extension and intension of EM, then analyse that EM exist in China listed companies. Secondly I introduce the questions and shortcomings of China stock market, put forward the experimental hypothesis of this paper, choose the better measure model of EM, verify marketing reaction of EM by using three models. If the investors don't attain abnomal returns, it shows that they can't see through EM. Thirdly we tesify the marketing reaction as CPA told the investors EM of listed companies by audit opinions, and we also analyse the relationship between EM and audit opinions. Lastly, policy and advice are advanced in order to limit EM from gambing.The paper is divided into nine chapters. Chapter one: Introduction. This chapter mainly explains the title selection background, researching purpose; defines the research ranges; brief surveys the domestic and international research dynamic status; states the research thought, methods and possible innovations.Chapter two: Correlative theory about EM. In this chapter we introduces the nation of EM; the character of EM; economics explanation of it ; procreant background, condition and motivation of it and the content of EM's market reaction. Therefore this part is the academic basis of the whole paper.Chapter three: Measure models of EM. This chapter mainly analysis three kinds of measure modles--total accruals model, specific accruals model and earnings distribution model including their forms, strongpoints and shortcomings.Chapter four: primary analysis on EM in China listed companies. Above all I explain that EM is due to the particularity of China stock market. Then it is testified that EM does exist in China listed companies by using experiential judgement. At the last catholicness and extent of it is testified by using modified earnings distribution model.Chapter five: Farther explanation on EM. Adopting different discriminating model, EM exists in right issue firms, initial public offerings firms and loss firms. Ulteriorly, different manners are adopted in different firms.Chapter six: Market reaction of EM. It is testified that market can't identify EM by using many models because investors don't acquire abnormal trading returns from a hedge portfolio. That is to say investors can't identify EM by discretional accrual and below line items, but can identify it using non–core return on equity. It also shows that the misallocation of invested capital was caused by EM.Chapter seven: Audit opinions and EM. We analyze market reaction when auditors tell EM of listed companies to investors, further find the reason that investors can't identify EM is egregious investment. But extreme figure appearance is due to audit opinions because they can tell much information to the investors and help them identify it.Chapter eight: Gambling analysis on EM. Gambling balances exist among listed companies, investors and department of supervise management by gambling models. All these is the basis of the rules and regulations that made by department of supervise management. Therefore it supplys the experiential evidence for managing companies governing, controling listed companies'EM, helping information users improve the competence of analysis and using accounting information constantly, assisting constitutors of accounting rules and supervisors of stock market to evaluate the influence of EM's universality and the reality of financing report.Chapter nine: Shortages and expectation of this study. In this chapter, I summarizes the shortcomings of this study, then put forward the future study aspects. The function of this part is to summarize the whole paper.The main contributions of this paper are provided as follow: firstly, EM exists in listed companies widely by adopting qualitative analysis and quantitative analysis, secondly, in order to testify the extent of EM, we add three variables to modified Jones Model to build a new total accruals model. At the same time we analyze the extent of EM in loss firms by using new Jones CF model and AP model, then, a new model—below line items distributing model is detected to validate EM in right issue firms; thirdly, when the Hedge Portfolio Model was used to test whether investors see through EM, a new variable—standardized rank of the proportion of none-trading stocks in it according to the special situation of China stock market; lastly, I also analyze the influence of audit opinions to EM and the relation between them and this provides evidence for audit opinion shopping of liste companies.