The Research On Earnings Management In Internal Capital Market

Based on internal transactions fit, this paper takes a deep research in the behavior of earnings management in internal capital market. Firstly, we analyze from a theoretical perspective, on the basis of the introduction of relevant theories, we definite the earnings management in internal capital market. Then we discuss its connotation and discriminate the related conceptions. Secondly, with the consideration of the characteristics of internal capital market, we discuss the reasons for the earnings management in internal capital market from the aspects of driven factors and facilities. This paper maintains that the ease of financing constraint, tax evasion, controlling shareholders and managers enlist personal gains together are the intrinsic motivations. By focus on organizational structure characteristics of internal capital market and the accounting standards, we think that the separation of control rights and ownership in pyramidal holding structure, the shortcomings in the operation of the internal capital market and the imperfection of the accounting standards all facilitate the earnings management in internal capital market. Thirdly, we analyze the main forms and influences of the earnings management in internal capital market. In this part, the common six ways used to adjust the earnings are pointed out, they conclude: the use of internal borrowing, the use of in-house products or services contacts, the use of internal transfer of assets or equity transfer, etc. Meanwhile, we make a dialectic analysis of the effects of the earnings management in internal capital market from the information concept and the opportunism concept. Based on it, we theoretically point out that the earnings management in internal capital market will reduce the efficiency of internal capital market and we must take measures to control this behavior. Fourthly, on the basis of the computation of the efficiency of internal capital market and the degree of earnings management, we take an empirical testing on the driven factors of the earnings management in internal capital market and the negative impacts on the efficiency of this behavior. Both theoretical analysis and empirical testing show that the presence of the earnings management in internal capital market has obviously reduced the efficiency of internal capital market. Therefore, in order to fully exert the allocation efficiency of internal capital market, this paper gives some countermeasures from the level of internal governance, accounting standards and securities regulatory respectively. Finally, we summarize the main conclusions of this paper and bring forward the future research directions.