Research On Listed Companies' Earnings Management With Extraordinary Items

Earnings information is an important factor which influence share price in Chinese security market. Earnings of a company can be divided into two parts: ordinary earnings and extraordinary earnings. The former is the core earnings which is continuing, according to which investors can forecast the future profitability and the future development of the company while the latter is contingent, non-recurring, by which investors can not forecast a company's development prospects. Yet there is a prominent phenomenon in listed companies' annual reports in recent years, that is, extraordinary gains and losses have become the majority of many listed companies' reported profits which have increasingly evolved into many companies' instrument of earnings management.According to previous research, Chinese capital market exists "little gains phenomenon ", " Share allotment phenomenon " and "big bath phenomenon". According to certain criteria, this dissertation choose some listed companies among all listed companies in the year 2001 to 2004 respectively and divide these companies into three groups of samples, roundly study if sample companies do manipulate profits with extraordinary gains and losses, try to find out specific extraordinary items which listed companies usually employ to manipulate profit. In this paper, empirical study methods such as descriptive statistics, distribution detection and regression analysis are employed. By comparing the distribution of "ROE" and "ROE deducted extraordinary gains and losses", this paper gained the evidences that companies with small profits and heavy losses companies do manipulate profits with extraordinary gains and losses, while this case do not apply Share allotment companies. Using regression analysis method to analyze the relation between net profits and operating profits and extraordinary items, this paper found that the instruments that listed companies using to manipulate profits showed many common features in different years. Combing with our system background., the last part of this dissertation_analyzed the empirical study result and gave some useful indicative suggestions about how to improve supervision regulations as well as how to perfect accounting standards.