The Research On Earnings Management Of Enterprises In China

Earning management (EM) refers to the behaviour of enterprise administrators selecting appropriate accounting policy and accounting system from alternatives, to maximize company value. Driven by different motives, companies will adopt different forms of earnings management. While in China, the theoretical research of EM still stays at Loss enterprise,stock placing enterprise and IPO enterprise so far. Does it means that there is no EM activity existing in profitable enterprises with excellent performance in capital market? Absolutely not, those companies will implement EM to achieve maximum self-interest to release the pressure of remaining profit stable and reduce the political cost. Furthermore, derived from different objectives, profitable companies will adopt different EM styles with other companies. Based on remaining revenue and reducing political cost, profitable companies often will adopt one kind of EM means called Income Smoothing Form to present the motive of stabilizing income in sequential time.Considering both EM theories and characteristics of profitable companies, this essay proposed two hypotheses: firstly, most profitable companies will implement Income Smoothing Form of EM in China; secondly, they will use means of infrequent profit and loss to make income smoothing. From data analysis of 42 profitable companies in shanghai and shengzhen stock markets, the first hypothesis is proved to be true while the means of infrequent profit and loss is not often used. Meanwhile, this essay also unveiled the phenomenon of abusing Income Smoothing EM by profitable companies in stock market through a specific case.At the end, this thesis concluded that Income Smoothing EM was a double-edged sword, and proposed some suggestions on how to regulate the behaviour of EM against potential abuse to promote healthy development of Chinese enterprises and capital market.