A Study On Institutional Background And Current Situation Of Earnings Management Of Listed Companies Of China

With the development of the securities market and the accelerated reform of state-owned companies, the topic about earnings management has drawn more attention amongst Chinese theorists.This paper aims to study the institutional background of earnings management of listed companies of China, and investigate the influence of the innovation of regulations of securities market and the reform of accounting policies respectively taking place on 1999 and 2001 by the method of empirical research and financial analysis, so as to conclude on the current situation of earnings management of listed companies of China.For a basis of the study, this paper firstly cites the definition and implication of earnings management, and then discusses why earnings management exists from the point of view of interest stimulation and stipulation, agency theory and cost-effect theory. It also makes a research on the inducement of earnings management and the relationship between earnings management and the characteristics of accounting.Considering the special situation of China, Chapter three debates the institutional background of earnings management from four aspects, which are the systematic reform of market economy of China, the weakness of corporate governance, the innovation of the regulations of capital market and the standardization of accounting policies.In particular, this paper lays stress on investigating the current situation of earnings management. Substantive data are collected from the financial reports of listed companies, and empirical research and financial analysis are adopted for this purpose. It first of all highlights the characteristics and trend of the frequency distribution of ROE of listed companies by Frequency Distribution Method and deduces the probable actions of earnings management. Secondly, it redesigns and simplifies the Modified Jones Model and uses it to verify the foregoing conclusion. On account of the limitation of empirical research, the next chapter emphasizes the research on extraordinary items, especially the provision of impairment and fiscal subsidy. It also analyzes the cash flow of listed companies.The last chapter summarizes all the conclusions and puts forward the restricting approach on earnings management.