The Impact Of Debt Contract On Real Earnings Management

Since China has joined the WTO, great changes have taken place in the environment for the development of enterprises, the phenomenon of earnings management is more and more frequent, which was based on more accrual earnings management.With the increasing possibility of default on the debt contract, the managers of the enterprise will have very strong motivation to conduct earnings management, which will urge creditors increase the intensity of supervision, and then select the real activities manipulation as earnings management.So it is necessary for us to study the following questions. Firstly, whether the debt contract has an influence on the earnings management of real activities hasn’t decided. Secondly, whether the different debt contracts have the same influence on the real activity earnings management, and if it has the different influence, what is different?SME board was established in Shenzhen stock exchange, and then become an important part of the capital market in China. Compared with the main board market, SME board listing Corporation has smaller scale, and its operating condition is not very stable.So it is difficult to own the financial institutions’ support.However,the role of SME board listing Corporation in China’s rapid economic development and stability can not be ignored.Therefore, from the perspective of debt contracts,this paper does research on the impact of debt contracts on the real activities of the SME board.On the one hand, studying the effect of different nature and source of liability on real earnings management enriches the research on real earnings management;On the other hand, the research does good to the analysis of business activities, identifying the real earnings management activities, and safeguarding the interests of creditors.Research ideas of this paper are as follows. First, the literature review introduces the debt contract hypothesis, real activities earnings management and the debt contract motivation of earnings management, which laid the theoretical foundation for the further research of the thesis.Then it summarizes the relationship between debt contract and earnings management, including positive correlation and on-monotonic relationship. Above all, this research found out the research questions and ideas of this paper through the collation and analysis of a large number of documents. In addition, the theoretical analysis and research hypothesis were carried out. And this paper mainly analyzes what influences the different natures of the debt contract have on the earnings management of real activities, and then this paper obtained the research hypothesis of this paper.Moreover, according to the characteristics of China’s securities market, the research selected the small and medium-sized public corporations as the research object. As a result, this paper established a research model to conduct empirical test. Finally, this paper drew conclusions according to the results of empirical analysis, and then summarized the enlightenment, policy recommendations and the shortcomings.Through the theoretical analysis and empirical test,this research drew the following conclusions. First, the debt covenants of small and medium sized enterprises has a positive effect on the scope of the real earnings management, and the small and medium sized enterprises would also use three ways, including cash flow, production cost and cost. Second, different nature of the debt contract has different impact on real earnings management. In other words, the ratio of short-term debt is positively related to the degree of real activity earnings management, and the proportion of long-term debt is inferior positively related to the degree of real activity earnings management, and other debt ratio, such as commercial credit, has the weakest positive correlation with real activity earnings management. However, the positive relationships above are all significant. Therefore, in order to make reasonable debt contract we should weigh up in the process of making the debt contract. At the same time, we also could give full play to the supervision mechanism’s governance role on the real earnings management of small and medium sized enterprises.