A Research On Earnings Management Of A Share Of Loss-making Industrial Enterprises

The study of earnings management dated from the beginning of the 1980th, rapidly followed by a storm of rising study on the international economics and accounting academics, which has been intensified. China's capital markets are now at a stage of rapid development, but the case of earnings management was an endless stream, which widely aroused the public's widespread concern about the financial reporting system and the numbers of doubt in the quality of financial and accounting information disclosed by companies. Some problems are related to the specific accounting treatment and relevant to the accounting standard-setting context, which is thought to be the key factor led to the earnings management of listed companies. In China, among the firms participate in earnings management, a majority of them are due to loss, the main reason is that the qualification of listing in China's stock market is a valuable "shell" resources, while China's withdrawal CITY system is based on company profit and loss to determine the delisting criteria, in order to avoid the misfortune of special treatment, suspension or even termination of listing. And the losing listed companies tend to.adopt various methods to profitability to meet regulatory requirements.For a range of issues, to meet the development requirements, the Ministry of Finance issued new accounting standards in 2006, in which the market economy environment, the accounting standard-setting foundation and theoretical basis as well as the specific accounting practices have greater changes in this round of accounting reform. The implementation of new accounting standards will have different effects on their earnings management behavior of listed companies. Some of the surplus management tools will disappear, while new tools will emerge. Therefore, this article Choose a loss of industrial enterprises as sample companies, by the normative and empirical analysis, which focused on the definition of earnings management, the pros and cons analysis and what is the impact of the promulgation of new accounting standards on the earnings management of losing listed companies; in theory, for loss-making industrial enterprises, the commonly used means and methods to conduct earnings management; while in the actual earnings management operations, business preference of methods and means.This content is divided into six chapters, as follows:Chapter One:Introduction. This article mainly focuses on the research background, motivation, domestic and international literature review and the framework of this article and research methods.Chapter II:the definition, characteristics, motives and means of earnings management. First, it summarizes the existing relevant definition of the earnings management, and at its basis offers the understanding of earnings management in this paper. Secondly, it analyses the advantages and disadvantages of the earnings management that is considered to be in a higher range, with the negative effects far outweighing the positive effects, and therefore should adopt various means to control earnings management within a reasonable range. Finally it analyses that the earnings management are mostly around for the purposes of coping with the securities regulatory authority, regulatory policies under the context of the special systems in China.ChapterⅢ:The new accounting standards and earnings management, which analyses the relationship between new accounting standards and earnings management, pointing out that accounting standards have naturally created conditions and methods for earnings management, while the counterproductive of earnings management contributed to the development and improvement of accounting standards as well. In addition, it analyses, through the four aspects of accounting recognition, measurement, disclosure and the professional judgments of accounting staffs, the impact of new accounting standards on suppression of earnings management and the new operating space.ChapterⅣ:research and design. To conduct research and analysis, eight hypotheses are put forward in this essay. It adopts the single-variable factors statistics and, and on its base analyses multi-variable factor, using non-linear logistic regression model to rigorously test the eight research hypothesis presented in this paper. Finally, it focuses on the construction of models.ChapterⅤ:Data analysis and results. First it conducts a descriptive analysis of the sample, initially drawn that firms may make earnings management in the use of debt restructuring activities, significant related party transactions, and manipulation of accruals, and the other non-operating net profit deducted the subsidies and non-current assets after the disposal of or loss. Then logic regression analysis are used to bring debt restructuring, significant related party transactions, gains and losses in fair value changes, investment income, government subsidies and other areas into analysis. As can be seen from the analysis that significant related party transactions, investment income, the other non-operating net profit of government subsidies and non-current assets after the disposal of gains and losses, and the manipulatively accrued profits, type of loss all have a significant impact on loss-making firms, while the debt reorganization, profit and loss in the changes of fair value have no significant impact. One of the main reasons is that related-party transactions are easy to control and operation and even the use of the fair market value to transact will also increase the profits of an enterprise. Second, it's too obvious and risky for companies to use these instruments because of the new provisions of China's new accounting standards in the debt restructuring, non-monetary assets exchange and devaluing prepare. Finally, the performance of the loss-making corporations'earnings management means in the report tends to be more secretive, not easy to find directly.Chapter VI:Conclusion and policy recommendations. By analyzing the research, the author confirmed first that constantly loss-making companies have a greater motivation for earnings management behavior to achieve the goals of profitability. This study contributes to:(a) To enrich the theory on the loss-making companies'earnings management methord through normative research and empirical studies; (b) The research, on earnings management behavior of loss corporate, provides theoretical basis for regulatory agencies to formulate the regulatory policies in the new accounting standards; (c) To find evidence on loss-making listed companies'earnings management behavior and method; (d) To be capable to help users of financial reports to understand listed companies' earnings quality and business value comprehensively and correctly. Investors who have a certain understanding on earnings management will not just care about and blindly believe in financial reporting numbers, but will take other important factors into account to evaluate a company's value. (e) These evidences may also provide clues to the formulation of accounting standards and supervision of listed companies in China's securities market, so as to provide the appropriate information to further regulate China's securities market.The main area of this writing involves management, economics, and financial management and so on. Yet, because of my limited knowledge of structure and my time and energy constraints, it is difficult to make a comprehensive analysis on the topic of earnings management. As a result, the essay just analyses the industrial loss-making enterprises, and assume that the loss-making companies have the motivation of earnings management for profitibility. The sample in this paper is based on the loss-making companies under the new accounting standards and it can provide just two years of data for research, so that there may be cases of insufficient samples. Secondly, for the analysis of the loss-making companies, this paper design variables, without considering the efforts of the enterprises themselves or other factors contributing to profitability. Since only categories of industrial enterprises are selected as the study object.