Study Of The Relationship Between Managerial Ability And Earnings Quality Based On Listed Companies Of Manufacturing Industry In China

Under the context of agency by agreement, the paper, by means of empirical study, conducts comprehensive and deep analysis on the competence of agent ('management') and the earnings quality of corporations, and further researches on the dependence between management competence and earnings quality of China manufacturing listed companies. The Enron scandal in 2002 is an important factor for the enactment of U.S.Sarbanes-Oxley Act (SOA) that has an enormous impact on U.S.financial market. It initially intends to enhance management's responsibility and appears to be conservative. However, it adopts extreme means, and Section 404 is the most contentious aspect of SOX for its strictness and high cost. The management is in control of majority of and core data of China listed companies; as a result, audit reports of certified public accountant become the only source for shareholders and users access to these data. Whether or not the competence of management can determine earnings quality and how they do it still remains kept secret. On the base of this logical point, the paper makes elaborate definition, analysis and evaluation of management competence, and studies the earnings quality of the listed companies they belong to; further, it discusses the correlation between them.The paper, taking China manufacturing listed companies from 2006 to 2008 as its samples and after a general overview of the existing theoretical and study results, researches on the competence of management and obtains the representative efficiency value for management competence by means of data envelopment analysis; then it uses the revised DD model to calculate companies'earnings quality and obtains the proxy variable of earnings quality; finally it adopts the empirical approach of linear regression analysis to conduct tests on management competence and earnings quality of manufacturing listed companies, and reaches a corresponding conclusion. It is shown that, the stronger the competence of management is, the smaller the earnings becomes. It is a thought-provoking conclusion, which shows that there are lots of shady zones in the earnings of China listed companies; the phenomenon of management's manipulation of earnings is very severe and the more powerful a manager is, the stronger his or her motivation to manipulate earnings becomes.