Earnings Management Motivation And Manner Research Before And After The Conduction Of New Accounting Standards

In the study of earnings management, accounting earnings can be decomposed into accruals and operating cash flow. So from the perspective of implementation, earnings management can be further divided into accrual earnings management and real earnings management, and real earnings management can be defined as one kind of activity which is conducted by manager by constructing a specific transaction or manipulating the time of the transaction. Real earnings management not only affects earnings, but also affects actual cash flow in each period. But for now, the research on earnings management has focused largely on accrual earnings management, the concerns of real earnings management is comparable rare. January 1,2007, China's listed companies are required to adopt the principles of accounting standards, which are International Financial Reporting Standards-oriented. Since inception, the efficiency and quality of the new standards are in a fierce debate. Many researchers link the study of earnings management with the new accounting standards, but all these studies only focus on accrual earnings management, while ignoring the real earnings management. But foreign scholars already have many studies about the accrued earnings management and real earnings management and find both earnings management existing commonly in company practices, and the company may have a certain preference toward the two earnings management, because of the implementation costs, regulatory pressures, standard constraints and other reasons. So, ignore any one of the studies will be one-sided.Cohen et al. (2008) found that after the implement of Sarbanes-Oxley Act, the accrual earnings management and real earnings management have a significant change, that is, the Sarbanes-Oxley Act forced corporate managers giving up the accrual earnings management and managing earnings through real earnings management, which more subtle and more difficult to measure. In contrast China's capital market and reform of accounting standards, which provide more space for professional judgments, the author wonder whether this change would have the same impact on earnings management as Sarbanes-Oxley Act has did. Thus, the main research questions of this article is whether the new accounting standards of China will force Chinese companies convert their accrual earnings management activity to more subtle real earnings management.Besides, a large number of domestic and foreign literatures also found that the company's motivation for earnings management played a big role in the company's earnings manipulation. So in order to make this research more substantial, I also tested the role of company's major earnings management motivation. In short, this study tests two questions:First, whether the implementation of new accounting standards affected the accrual earnings management and real earnings management of company, and second, the role of the motivation of earnings management in company's accrual and real earnings management activities.The structure of my study is as below:Section one discusses research background, research purpose, research methods and ideas of the basic issues.Section second is the literature review and theoretical analysis. Literature review is divided into three parts. the first part includes the definition of real earnings management, the instances of real earnings management, the economic consequences of real earnings management and the relationship between the real earnings management and accrual earnings management; second part discusses theoretical and empirical literature about the impact of motivation on earnings management behavior. The third part is the conclusion of these literatures.Section three discusses the research design. This section points out the research hypothesis, sample selection method, the choice of variables and research model.Section four includes the empirical testing and analysis, and the section five conducts further analysis and robustness testing. According to Cohen (2008) approach, using suspect companies which are more likely to have managed earnings as the sample of observations to examine real earnings management, the study further tests whether the measurement method can capture the real earnings management. Finally, the conclusions, policy recommendations and research prospects are discussed in section six. Finally, combining qualitative and quantitative analysis, this study concludes that, first of all, with the implementation of new accounting standards, the company increased the accrual earnings management, and at the same time, the company's real earnings management also increased to some extent, but the overall amplitude is not obvious. To explain, the increase of accrual earnings management may be due to the robustness of the accounting standards, and rare of real earnings management may be due to costs, implementation difficulties and regulatory pressure.Secondly, as previous research literature has found, there are several major capital company market motives, and these motives are playing an important role in company's accrual and real earnings management behavior.Third, in order to meet the needs of a variety of motives, company would choose to use accrual and real earnings management at the same time to achieve appropriate profits. This may be due to new accounting standards, which change the implementation of cost of earnings management. So, the company needs to consider the costs to make a comprehensive choice, when facing the needs of management.Contribution of this paper is to make up the domestic vacancy on the real earnings management research, and provide some guide and reference to later research. At present, most studies only focus on accrual earnings management, while ignoring the real earnings management. This paper is based on real earnings management in foreign research literature, aimed at testing the accrual earnings management and real earnings management of China's listed companies, and these two types of earnings management before and after the promulgation of the new accounting standards. The aim is to enrich our earnings management research literature.Finally, the limitations of this study are:Firstly, the sample data is not rich enough. I just use the data of listed companies from 2005 to 2009. Insufficient number of samples may lead the time trend characteristics of real and accrual-based accounting not apparent. If the sample can further expand, I can get a more specific time trends and provide a more robust result for the study conclusions.Secondly, in this study, I learn a large number of measurement models for real earnings management from foreign literature. The true measure of real earnings management has been a major difficulty in the earnings management research. Whether the models borrowed from foreign studies can be applied to China's special capital market research is also worth further discussion.