Thoerotical And Positive Study On Earnings Management Of Listed Company In China

Earnings Management is becoming a forefront research topic in the international economics and in the accounting academy since 1980s; furthermore, it is a worldwide complicated problem. Earnings Management in Chinese listed companies is so prevalent that it has brought a negative impact on the normal functioning of the market economy. This paper aims at providing direction for investors and policy recommendations for government supervision departments by means of positive comparison studies on Earnings Management among industries.Based on the basic theory of Earnings Management, EM motives and EM means in Chinese listed companies, the paper takes use of modified Jones Model to study listed company data of 22 industries from 2001 to 2006. The paper has verified 4 significant conclusions: (1) Universality of Earnings Management: Earnings Management is highly universal in 22 industries in China. (2) Direction of earnings management: 16 sectors in the total 22 sectors are taking on a positive Earnings Management, which share proportion of 73%; 6 sectors taking reverse Earnings Management, which share proportion of 27%. Positive study has proved that the majority of listed companies tend to make more earnings. (3) Degree of Earnings Management: Positive Earnings Management in 9 sectors of total 22 sectors is serious, which shares 41% proportion of total 22 sectors and 56% proportion of 16 positive Earings Management sectors. This means listed companies in China not only take on Earnings Management but also the extent of Earnings Management is quite high. (4) Means of Earnings Management: nearly half of industrial sectors in high degree of earnings management sectors use reduction of non-credit sales, that is, increasing credit sales to manage earnings, in addition, recording low fixed assets actual value (which means lower depreciation in the future) to realize more earnings. Positive study has proved that nearly half of sectors don't ultimately make use of fixed assets and income to manage earnings, indicating they use other manipulation means. The degree of Earnings Manupulation in reverse Earnings Management sectors is in middle or low level, which means that the span of reverse earnings management is not large even if it exists in reality.Finally the study puts forward 5 policy recommendations: making better governance structure, improving traditional accounting model, improving disclosure system of financial information, improving and strengthening audit supervision, improving and strengthening securities regulatory.