Investigation On The Relationship Between Earnings Management And Financing Behaviors Of China's Listed Companies

Based on China's listed companies, this paper analyzes the overall features of earnings management and financing behaviors; then, examines the relationship between earnings management and financing behaviors by empirical testing models.Firstly, taken all the China's Shanghai and Shenzhen A-share listed companies as an entire research target, I investigate the collective characters of capital structure and the changing trend of financing preference between 1992 and 2006. Research result shows that those cross-sectional financial ratios of China's listed companies are parallel with those of companies in developed countries. At the same time, financing preference demonstrates a change from equity to liabilities. Secondly, using listed companies'ROE from 1993 to 2006 as the sample, this paper examines the distribution of earnings and tests continuity of earnings'distribution by Frequency Distribution Approach. It shows that there exists distinguished discontinuity in earnings'distribution on specific spots. The result approves that listed companies have strong financing incentive to manipulate earnings. In the last part of the paper, I set up several econometric models to verify the relationship between earnings management and financing behaviors and capital structure. Furthermore, I also test the relationship between extent of earnings management and financing preference. The outcomes of regression analysis reveal that all the three financing methods presents prominent positive correlation with earnings management, so does financing preference. Both the statistical analysis of financing trend and the regression result of financing preference show anastomosis with Pecking Order Hypothesis. Through analysis of factors that influence earnings management and financing behaviors, this paper draws the conclusion: in China's listed companies, there exist prevalent earnings management phenomena and incentives for earnings management have a close knit with financing demand.