Fair Value Measurement Of Earnings Management Of Listed Companies In Empirical Research

With the development of economy, history cost accounting method cannot fulfill the requirement of accounting information users. Under this economic background, the treasury department issued new accounting principle on Feb. 15th, 2006. The key feature of this new principle is the reintroducing of fair value accounting method. The using of fair value accounting involved fierce discussion in both of the theoritcal and the practical fields. Advocates agree that fair value accounting add the information content to financial report; opponents agree that fair value add the fluctuation of net income and enlarge the room for earning manipulation. Until now, there is few literature focus on the relationship between fair value and earning manipulation, for the reason of lack of data, most of which stays at the theoretical stage.We have noticed that after adopting fair value accounting principle, gain or loss on investment securities has changed significantly, taking it as our researching objective may have practical significance. Based on the interim financial report of listed company in both 2006 and 2007, we analyse the cross section data, and further the research by selecting several kinds of company which have strong motivation on earning management. We select ROE as explained variable as it is the most important index for both listed company and securities regulatory commission, gain or loss on investment securities and operating revenue as explainary variable and other for control variable which have influence on the action of earning management. After correlation analysis, nonparametric test and regression analysis, the result suggested that after adopting fair value accounting principle, there are fewer companies using gain or loss on investment securities to manipulate earnings, but it cannot prevent earning manipulating in turnaround companies. Gain or loss on investment securities is not the tool for earning-smoothing company to smooth their income. Besides, the year after company went to public have influence on company earning management, which can be usually explained to certain extent by corporate governance structure. Based on the empirical evidences, this paper provides some advice on accounting principle in order to prevent earning management actions.