Earnings Management Of Specific Accruals

The paper started with the judgement yardstick to measure assets'fair value and earnings management on specific accruals without bias. Under New Institutional Economics theories'framework, the paper inspects the earnings management evidence on bad debts information along two clues, one is internal motivation and the other is external causality. The agent contract characteristic of modern corporations is the internal motivation, affecting the extent of discretionary reported earnings, while the private controlling benefits in markets of products, credits, stocks, and managers, are the attractive causality, determining the derection of adjustments towards target income. The evidence on bad debts helped to construct an integrated structure connecting corporations, markets and governments together and make explaination for the behavior of managers.Tracing back to the history of earnings management measuring, the developments of total accruals studied by researchers inspired us to pursue the substance of minimized bias in designing and selecting key variables, and arranging test process as well. Following McNichols & Wilson (1988) model on bad debts provision, we developed a proxy named Resprov for discretionary part of specific accruals, and verified its unbias through overall test by modified Jones Model (1995), thus increased our confidence in this proxy during the following motivation test and causality test. Breaking the test results in domestic top journals into different topics for statistics and analysis, the paper tentatively sketched a whole scene portrait of local earnings management studies for recent ten years. The differenc between oversea and local evidence illustrated that ignoring the eviorment disparity, and transplant west proxy to capture research subjects without considering institutions background, will lead to the failure of tests and unexplainable results. The paper also found that traditional proxy in local writedown studies neglected the period characteristcs of earnings and has the suspicion of bias. The paper shows, the synthetical appraisal for bad debts information provided by Chinese listed companies is insufficient provision. Except for large loss companies overfulfilled to take big bath, and large profit companies slightly exceeded to smooth, most companies have the tendency of providing less allowance for bad debts. (1) Under the clue of motivation, the coporate mechanisms which might restrict the extend of earnings management, are concentrated stock equity structure, institutional investors participation, audit committee establishment in board, and developed market process in region enviorment, while state-owned property, confrontationed equity structure, and outside directors failed to get evidence of restraining earnings manangement on specific accruals. The coporate governance enviorment in a transformed economic entity has made best annotation for this result. (2) Under the clue of causality, stock markets has get more idealed testing results than other markets. Using specific accruals to mange reported earings is more common in large profit companies to smoothing income into future periods, and companies in the edge of ST range, both above and beneath the scope, no matter in what period does their target income lies, the insufficient provision or exceeded provision reflected their desire to avoid the destiny of being ST by regulartors. In the opposite, large loss companies which doomed to be ST didn't express apparent manipulation on specific accruals. Because accounting information's role as contract foundamental basis is different in China markets, thus connection between private controlling benefits in certain markets and earnings management has voluntarily break up, such as managers' compensation of Positive Accounting Hypothesis in controlers market.Clarifing the framework of New Instituional Economic theories as guidance in earnings management studies, the paper expects to provide direction in governing earnings management before it lead to great damage of society's wheath. The regulators' responsibility is to help (but not replace) the markets to build up information delivering and examining machanisms, thus increase markets'ability to distinguish the "lies".