Research On The Earnings Management Of Chinese Listed Companies Based On Managers' Risk Preference

Earnings Management is the hot topic in Accountancy. Developing over a long period, classical researches on earnings management have gained great successes, formed a matured system and frame. However, the basis of classical researches on earnings management limits its development space which is people are fully rational. From the behavioral finance, however, people are not fully rational. Instead, their behavior is affected by a great deal of intrinsic psychology factors.Behavioral finance as the coalition of psychology and finance, it attacks the theory basis of classical economics. With the hot development condition, it is quite insufficient that only studying earning management based on people are fully rational. Therefore, studying earnings management using behavioral finance may provide the researches on earnings management with a new perspective.This paper based on managers' utility over wealth and the structure of wealth, thinking over managers' personal characteristics, using A-P and LRPI as the proxy variables of managers' risk preference. The level of managers' preference to risk depends on the direct wealth gained from the companies, making up A-P index to measure manager's risk preference directly. At the same time, the ratio of salary and the value of stock ownership implicit the managers' risk preference, constructing the LRPI to measure the managers' risk preference indirectly. In the end, regressing the indexes and the level of earning management according to modified Jones with panel probity. The result of regression shows: (1) A-P and LRPI is consistent in measuring the level of managers' risk preference; (2) the managers' characteristics including wealth, age, gender, percentage of shares owned and tenure could effect the managers' risk preference (3) the more wealth managers gained from the companies, the smaller the A-P DARA, the more he prefer risk and more earning management he does ; (4) the more wealth the managers gained from the companies and fewer ratio of the salary, the smaller the LRPI, the more he prefer risk and more earning management he does.