Empirical Study On Earnings Management And Related Party Transactions In Listed Firms

Related Party Transaction is one of normal phenomenon of litmusless economy category, appears with the plentiful exertion of multinational and mother-subsidiary company. It is also the inevitable normal dealing in market economy, for it can cut down the transaction cost among firms under the open, fair and just principle.But the Listed firm may adjust its earnings information in the open report forms using the Related Party Transaction.It may infract the legal rights and interests of firm, other shareholders or goods participators. So it is being of the important real signification to study the Related Party Transaction of Listed firms, especially to study the effect of earnings management of Listed firms by Related Party Transaction.Firstly, the paper brings forward the study content based on the concept, characteristics and the primary analysis of study literature of the Related Party Transaction and earnings management of Listed firm. Secondly, the actuality of the Related Party Transaction of listed firm is analyzed by statistic, then the characteristics of the Related Party Transaction of inland listed firm are achieved, and the hypostasis is analyzed by the actuality. Then, 3 study hypothesises are achieved by the distributing rule of net assets yield of inland listed firm, based on the transaction fee theory and consigning & surrogate theory as the theory basis of empirical study. Finally, the empirical study is finished. On the empirical study, 768 listed firms of Shanghai Stock Exchange in the 2005~2007 are chosen as study sample. And a correctional cross section Jones model is achieved by the former study achievement. Then each variable is statistical analyzed, and the characteristics of Related Party Transaction and earnings management of listed firm is mainly get. The correctional cross section Jones model is used to analyze the effect of earnings management by Related Party Transaction. And the absolute value of all the count of control capability is used to analyze the degree of earnings management, which is the explained variable. The above 3 study hypothesises are validated by multi-linearity-regression-analysis method using the statistic analyses software SPSS 15.0. On the regression analyses, there are two times of multi-linearity-regression. The first is to validate if there is the common linearity check, which shows that there are not any common linearity among the variables. The second is to validate above 3 study hypothesises.The results of empirical study shows that, the related party transaction dealing, such as related party purchase and sale commodity, offering or accepting work service etc, is the natural dealing among corporations, and does not form the corresponding relation to earnings management. It is essential to engross the firm's assents to offer sponsion, mortagage and fund, which will lead to change the manage achievement of firms since it has the non-constructive effect and positive relation to earnings management. When the following two states appear, the Related Party Transaction will become the one of the main means of earnings management, and be positive relation to earnings management: to provide to drawing on 'ST' or to pick off 'ST' when the yield of net capital of listed firms is between 0 and 1% (tiny profit group); or to issue additional new stocks or admeasure stocks when its yield of net capital is more than 10% (to admeasure stocks). So the Related Party Transaction between listed firm and related party needs to analyze according to the actual transaction type. Some are satisfied with the suppose of conflict of interest, and other are satisfied with the suppose of valid transaction.Finally, from the results of empirical study, the paper brings forward some countermeasures to father related party transaction and earnings management on term of the fathering frame of firms and supervision from inside and outside of firms.