Study The Earnings Management Of Chinese Listed Companies' From The Capital Market

This article has adopted Katherine Schipper's definition of earnings management, that is, earnings management is a process that managers control the financial statement on purpose within the limit of accounting standards for personal profit. The scope of earnings management discussed here is the intentional and excessively subjective earnings management, which has deviated from independent financial statement and impartial operation.Earnings management has four features: 1. its subject is the company's management authority; 2. the object is accounting principles, accounting methods and accounting estimation; 3. earnings management does not increase or reduce the actual profit of a company; 4. earnings management is concerned with economic profit and signal effect of accounting figures. Besides, because of the unsymmetrical information incurred by relationship between trusters and trustees as well as inherent feature of accounting, earnings management has become an essential part of company operation.In order to achieve the maximized profit of an individual and the maximized value of a company, the management will implement earnings management in consideration of contracts, capital cost and capital market. The motives of earnings management including debt contracts, profit sharing plan, handling supervision, anti-Trust, minimized income tax, IPO, and enhancing share price not only are realized in the western capital market but also have some impact in Chinese capital market.As for Chinese listed companies' earnings management, the major motive is from the capital market to meet the securities supervision policy. Accordingly, motives such as . IPO, share allocation, avoidance of share suspension and delisting also appear in the country. This can be proved by the key ratio's irregular distribution (such as ROE) around the threshold standard (10%, 6%) of securities supervision. In addition, the listed companies in our country has also the motive to raise the share price by means of earnings management, but the motive is not adequate in the immature capital market in China.Influenced by the unsymmetrical information, the investors are hard to learn the earnings management of listed companies. However, the investors can still see through listed companies' tricks to protect themselves to the greatest extent by means of analyzing the financial statement as well as paying attention to choices of accounting principles, alternation of accounting estimation, assets impairment provision, related parties transaction, reconstruction and adjustment in operation.Since several severe accounting affairs are exposed, people become more and more alert to the negative effect of earnings management. From the angle of investors and the market, the counter eliminating market of Gresham's Law (the bad money will drive out good) will be formed, because a large number of listed companies abuse the earnings management systematically and lastingly, which, together with the ineffective supervision, will pose a direct threat to the existence and development of the Chinese market. As for listed companies, the long-term and excessive earnings management will finally lead to the adverse effect of the market and they will reap what they have sown. Nevertheless, that does not mean we deny the positive effect of the earnings management. Therefore, only reasonable and suitable earnings management will turn out into a win-win situation for the country, companies and investors.Earnings management is an inevitable activity in a company's operation. Because of that, the investors have to acquire methods to recognize the earnings management methods, screen from limited information and analyze it in order to defend their own benefits. As for government, it should improve the company management structure, reform securities supervision policy, regulate the accounting principles and standards, restrain CPA's professional behavior and enhance the investors' quality by establishing the fending system to control the earnings management of li...