China's Listed Companies' Earnings Management Research

Earnings management is one of the important areas of modern financial accountingresearch. The foreign accounting researchers have being studied it for nearly twenty years.With the development of China securities market, the earnings management of the listedcompany become more and more prevalent and has become a focus of the scholars. Thisessay is based on both foreign and civil research results of the earnings management theory,analyses the motivations of the earnings management of Chinese listed company,identifies the technical methods of the earnings management, and proposes several meansof improvement and protection aiming at the earnings excess management of the listedcompany.There are four chapters in the essay. First of all, the first chapter gives asummarization of earnings management. It begins with the definition of earningsmanagement, distinguishes earnings management from profits magnifications, expoundsthe theory origins, introduces the research results of both foreign and civil scholars briefly,and discusses the advantages and disadvantages of earnings management.The second chapter is the analysis of inducements of earnings management, whichcould be divided into external factors and internal factors. The former ones include theinherent limitations of accounting theories and methods, the imperfection of accountingsystem and rules, the serious dissymmetry of accounting information;the latter onesmainly involve managers benefit-chasing motivation, verifying managers motivation,obtaining rear resources and political motivations, avoiding tax and political costsmotivation, as well as debts contracts motivation, so and forth.Then it particularly presents the means of earnings management of listed company. Itdivides it into three types: the first one is the listed company manages earnings relying onthe imperfection of accounting regulations, such as associations transaction, assetsreorganization and liabilities reorganization;the second one is the listed company managesearnings relying on the flexibility of accounting rules, it mainly refers to changes inaccounting policies and estimates, reverses for eight assets, depreciation and inventoryflow policies, as well as capitalized loan expenses policy;the third one is the listedcompany manages earnings relying on the local government, it mainly refers to taxexemptions, reductions, return and finance subsidy.The last part gives several ways to identify earnings management of listed companyand makes some proposals to avoid earnings management. In order to recognize earningsmanagement evidences, there are three ways, paying attention to the audit report from CPA,analyzing the basic financial status of listed company and researching financial reports andreports notes entirely and in detail. Avoiding excess earnings management of listedcompany could be performed from following aspects: improving accounting rules system,perfecting the management structure of the corporation;developing the financial analyzergroups, strengthening the information disclosure system of listed company, weakening thedrive of corporations' earnings management, increasing the power of supervision andpunishment, and shaping fine profession morals, etc.