China's Listed Commercial Bank Loans For Impairment Of Study On Earnings Management

Earnings management is that managers, for their own interests or enterprise value maximum of such purposes, choose accounting policies that are in favor of achieving these objectives, or the behaviors of using accounting data of financial statements to mislead some stakeholders when considering business decisions of the companies, or the behaviors of using of accounting data of the financial reports to influence the results of the contracts implementations. As an important accrual account of a commercial bank, the loan impairment is easily be manipulated as a tool of earnings management. Based on the existing policies, commercial bank managers are inevitably required to make judgments and evaluations during the process of accruing loan impairments, which not only leads to loan impairments unavoidably influenced by subjective impacts, but also leaves some space for earnings management behaviors. Bank managers can manipulate profits by adjusting loan impairments to meet internal performance evaluations, investors and stakeholders'expectations or industry regulatory requirements.This paper summarizes the relevant domestic and international study results about earnings management, especially about commercial banks earnings management. Based on the research results, we analyze the financial data from 16 listed commercial banks from 2007 to 2009, and by that, we find that commercial bank managers do have earnings management behaviors, and we analyzes the factors that impact commercial bank earnings management.To avoid bank managers using loan impairments to manipulate earnings, firstly, concerning that some judgments and evaluations are inevitably involved in the process of accruing loan impairments, commercial banks need to establish sound risk management systems, standardize and coordinate the functions of different departments, and make sure the staff with relevant professional experiences to minimize subjective factors; secondly, commercial banks should gradually improve the ownership structures; thirdly, both accounting regulators and financial regulators should continue to improve the information disclosure systems about loan impairments; finally, we need to strengthen the prudential supervision of financial supervisions and the importance of the independence of third-party audits to reduce the probability of adjusting commercial bank loan impairments.