Research On The Earnings Management Of Chinese Listed Companies Engaged In Control Transfer

This dissertation studies the earnings management behaviors which were carried on by large shareholders to pursue private benefits of control before the corporate controls were transferred.This dissertation also discusses the relationship between earnings management and performance change of listed companies whose controls had been transferred.Based on the special corporate governance structure,this dissertation puts forward that large shareholders have motives to manage reported earnings before the corporate controls are transferred,because that they are the last opportunities for large shareholders to obtain private benefits from considerations of controls.The motive model of this dissertation indicates that whether large shareholders manage reported eamings or not depends on whether the eamings management behaviors can bring positive profits.The model also indicates that direction of earnings management depends on the value relevance of earnings.However,price-eamings relation may not be homogeneous across profit and loss companies.We hypothesize that high earnings for profit companies can bring more premiums to large shareholders.We also hypothesize that loss companies' large shareholders can benefit from the value increment of shell resources after the reported earning were managed downward. Empirical research of this dissertation proves these two hypotheses.Moreover,this dissertation also finds that the magnitude of earnings management of state-controlled companies is larger than that of legal-person-controlled companies and that the magnitude of earnings management of companies whose large shareholders hold more than thirty percent of the outstanding shares is larger than that of companies whose large shareholders hold less than thirty percent of the outstanding shares.These results support the conclusion that large shareholders have motives to manage reported earnings before the corporate controls were transferred.We also investigate the relationship between discretionary accruals and premiums of control.The result shows that acquirers can not recognize the earnings management behaviors for both profit and loss companies.It is questionable whether the change of accounting performance can represent the change of operational efficiency.Empirical research of this dissertation finds that the performance adjusted by median performance of industry decrease before the transfer of control and increase after the transfer of control in some extent.The statistics in group show that the adjusted performance for loss companies have been improved significantly after the transfer of control,and the adjusted performance for profit companies decrease after the transfer of control.The further analysises show that the discretionary accruals of loss companies at t-1 years reverse after the transfer.The regression result confirms that one of the reasons of the performance change is that reported earnings are managed.The results metioned above show that the performance changes after the transfer of control were caused partly by earnings management.So, when the control has been transferred,it is not the best choice to evaluate the operational efficiency of such companies using earning numbers,such as return on assets,return on equity,and so on.