Study On The Relationship Between The Earnings Management And The Stock Market Returns During The Circulation Of The Non-tradable Shares

Non-tradable shares were the institutional arrangement at the beginning of China's securities market to establish. This arrangement took various problems for the stability and development of Chinese securities. Therefore, the Non-tradable Shares Reform was necessary. However, with the non-tradable shares gonging into circulation, the circulation caused great concern of all parties, or even be considered another major problem except the uncertainty of the macroeconomic. Non-tradable shares are the non-emerged phenomenon in recent years, so the circulation of the non-tradable shares is a new area of research. And the earnings management in the process of the circulation of the non-tradable shares is a totally new research point, which has practical guide.This article focuses on the research of the correlation between the earnings management and stock market returns during the circulation of the non-tradable shares, which tries to prove the existence of earnings management of the shareholders of the non-tradable shares to meet the circulation, in order to get excess returns. First, I find the average of the manipulates accounting accruals has the trends of increasing in the period of T-2 and T-1 before the circulation of the non-tradable shares, increases to the maximum in the closed T0 period of the circulation, and then begins to decrease in the period of T1 after the circulation with the using of modified Jones Model, which proves the existence of earnings management of the shareholders of the non-tradable shares during the circulation. Second, I find the return of the non-tradable shares is significantly negative before the circulation, significantly positive and significantly improves in the period of the circulation, and significantly negative again after the circulation with using Events analysis, which means the return of the non-tradable shares is higher than the market level. Finally, in the context of the existence of earnings management of the shareholders of the non-tradable shares and positive return of the non-tradable shares, with using multiple regression model I find these two have relationship, which means the shareholders of the non-tradable shares have earnings management to make the price of the stock toward the direction of their expectation in order to get excess returns.