Empirical Study On The Relationship Of Local Government Subsidy And Listed Companies' Earnings Management

The relationship of Local government and the academia is a hot topic in recent years. But from the perspective of accounting to discover the impact of local government on listed companies is still a minority. Local government's participation in the management of listed companies is a unique phenomenon in our country. The study is focused on the domestic local government's impact on the performance of the business. I think that local government subsidies and the listed companies' earnings management have a myriad exact correlation, which is a worthy study in depth. In recent years, China has introduced a number of relevant documents, in order to stop the manipulation of local government on listed companies. The "Company Accounting tax return and other relevant provisions of the notice" is the most powerful act to curb a surplus.This paper introduced the requirement for 2001—2005's all listed companies, as the sample, in order to show the participation of local governments in the management of listed companies at a certain degree, to identify the pattern and extent of their participation, to reveal the relevant laws and regulations in recent years to eliminate subsidies to achieve some listed companies' special purpose, to reflect the superiority of upcoming implementation of the new accounting standards in 2007.This paper proposes four assumptions that revenue to subsidize the profits of listed companies is an important component; the impact for the unqualified is weakening; to prevent listed ST or PT, the local governments manipulate profits; there is a relationship between the government's impact and subsidies, that the greater the proportion of state-owned shares, more local government grants.The empirical analysis is conducted by SPSS statistical and by Excel used for all industries and regions' descriptive statistics. Descriptive statistics can be seen from the local government subsidies for different companies at different levels. From an industrial perspective, local governments tend to subsidize the high-tech state-supported enterprises and the basic industries; from a regional perspective, local governments give support to both provinces and cities with different level of economic development. But the focus is still on the coastal developed areas' listed companies. Statistical testing can be seen that the revenue to subsidize the listed companies is an important component; local government subsidies for special treatment by the company plays a certain role; income subsidies have no effect on the companies' unqualified; local governments don't choose to subsidize targeted by the state-owned shares. Moreover, the new accounting rules allow the government to make recognition and measurement more standardized and international.The paper's features are that data of this study have practical effects. In addition, the paper focused on the theoretical level, in addition to empirical analysis, emphasizing management of listed companies to identify the source of local governments; the paper introduced new accounting standards, which is more scientific and normal in contrast of the accounting treatment. The shortcoming of this paper is that only "lost income" might have some empirical study of one-sidedness.