Study On Convertible Bonds Financing And Earnings Management-Evidence From China's Listed Companies

Since 1980s, the earnings management has become a hot issue and attracted many researchers'attention in the accounting field both domestic and abroad. It is generally accepted that the motivation of earnings management includes capital marketing motivation, contractual motivation, and supervising motivation. In China, with the gradual improvement of capital markets, the listed companies have diverse ways of financing. And convertible bonds financing has gradually become an important component of corporate finance. According to previous studies, when the listed companies are in the IPO, issuance, allotment and other processes, managers usually conduct earnings management. So, when the listed companies are issuing convertible bonds in the year, do the managers conduct earnings management in order to increase the value of convertible bonds and to reduce the distribution costs? And when the listed companies are redeeming convertible bonds in the year, do the managers conduct earnings management in order to accelerate the conversion of convertible bonds and to reduce financial risk? For the above problems, this paper conducts an empirical analysis of earnings management to the companies which issued and redeemed convertible bonds.The information of net profit in a company's financial report generally includes cash flow and accruals. And the accruals can be divided into current accruals and non-current accruals. According to previous research, this article will adopt discretionary current accruals as a proxy for earnings management. In this paper, we use the financial reporting data of the China's listed companies in the year 2000-2008 to make an empirical analysis that firms issuing and redeeming convertible bonds are whether engaged in more earnings management. The results show that companies are engaged in more earnings management in the issuing year. And we do not find any difference in earnings management when the companies redeem convertible bonds.Finally, based on the empirical research, we put forward some suggestions: improving the accounting standards; improving relevant laws and regulations, and increasing the penalties; establishing the information disclosure system of convertible bonds.