An Empirical Study On The Earnings Management By The Use Of The Financial Assets Of Listed Companies

In 2006, the Ministry of Finance issued new accounting standards on recognition and measurement of financial assets. Under the new criteria in four categories of financial assets, financial assets based on fair value to confirm profit or loss and financial assets available for sale apply the measurement model of fair value. The difference is that the unrealized gains and losses are charged directly to current profits of the first class of financial assets, while the second charged directly to capital surplus, only can to be transferred out of the sale. That system arrangement provides the opportunity of earnings management through selling financial assets. In addition, with the volatility of stock market, investment in securities of listed companies makes an important contribution to profits. This paper researches whether selling financial assets can be a means of earnings management of listed companies.Based on the lease contract theory of friction and asymmetric information theory of friction, this paper analyses the possibility of earnings management from the perspective of accounting standards using two different types of financial assets. According to the two major common motivations—avoiding the loss and issuing rights in China, this paper puts forward the hypothesis. This paper verifies the existence of earnings management through the combination of motivation and behavior.This paper chooses the listed companies as research samples which have the act of selling financial assets after the implementation of new accounting standards. This paper uses incentive-groups for independent samples T test, and establish multiple linear regression model. The empirical results show that: when listed companies have to avoid deficit, and selling financial assets can make a profit, then the companies will have the motivation of earnings management. If the companies can not realize this purpose, then they will not have the motivation of earnings management. When the listed companies have to avoid the loss of motivation, then they can through the sale of available financial assets to achieve earnings management, regardless of capital market stock price.Based on the above conclusions, this paper proposes two recommendations which can inhibit earnings management. The first recommendation is that introduce the view of comprehensive income, and the second is norm the accounting information disclosure of listed companies.