Empirical Research On Impact Of Fair Value Measurement On Earnings Management Of Listed Companies

In 2006 fair value was reintroduced into Chinese new accounting principles, which would make a profound impact on earnings management of listed companies. As earnings management becomes obvious and widespread under the fair value measurement, people begin to doubt whether fair value can play an important role in restricting listed companies'earnings management space. In this paper, we verify the relationship between fair value measurement and earnings management of listed companies through empirical analysis, trying to find the ways how fair value affects earnings management and the preference in choosing methods of earning management.Based on the theoretical research achievements of domestic and abroad scholars, we firstly analyze the effect of fair value measurement on earnings management from five aspects such as measurement of financial assets, measurement of investment properties, debt restructuring, exchange of non-monetary assets and provision for impairment losses of assets by using theoretical research method. Then we select the Chinese A-share listed companies from the year of 2005 to 2008 as samples and study the earnings management of listed companies under both history cost and fair value measurement comparatively through empirical research method.In the positive research, our paper takes the discretionary accruals which are calculated from the extended Jones model as the explained variable, while gains on securities investment, non-operating revenue and impairment losses of assets are selected as explaining variables. Then we build regression equation to test the effects of fair value measurement on earnings management of listed companies. Through the comparative analysis of regression results of overall samples and grouping samples with strong motives under both history cost and fair value measurement, our paper proves that the overall Chinese listed companies obviously use gains on securities investment, non-operating revenue and impairment losses of assets to manage earnings, and they regard gains on securities investment as the first choice, non-operating revenue as the second choice, impairment losses of assets as the last choice under both history cost and fair value measurement. Loss-making listed companies mainly use impairment losses of assets to manipulate earnings under history cost measurement, while they use both non-operating revenue and assets impairment losses under fair value measurement. Listed companies with meager profit mainly use gains on securities investment as a convenient earnings management tool under history cost measurement, while they use assets impairment losses under fair value measurement. Listed companies with motives of rights offering and seasoned equity offering mainly use non-operating revenue to manipulate earnings under both history cost and fair value measurement. Finally, we put forward some suggestions on how to curb the earnings management of listed companies effectively based on the empirical results.