Financial Status, Corporate Governance And Earnings Management

Financial status affects the level of corporate governance and the extent of earnings management as the most important and the most commonly operational measure, Chinese and foreign scholars mainly studied the relationship between corporate governance and earning management, financial status was seldom involved into empirical research as a general overview and standardize index, fewer established three correlate relationships. This paper is to study the relationship between financial status, corporate governance and earnings management, using data on China manufacturing firms from 2006 to 2008, Health, distress and gray firms by Altman-z, G index by Chong-En Bai, earnings management by the modified JONES mode1,2sls and 3sls are employed.A negative relationship is found between G index and financial status, the gray firms are more likely to resort to discretionary accruals, strong governance can restrain earnings management to some extent, and poor earnings management means strong corporate governance.