The Study Of Listed Companies’s Earnings Management With Non-recurring Gains And Losses

China’s Securities Regulatory Commission in2008released the latest requirements.The definition of non-recurring gains and losses, the specific content and the requirementsfor disclosure,are supplemented and revised. The requirements are designed to control thelisted companies to manipulate the behavior of non-recurring gains and losses. However,due to various reasons, listed companies will still exploit extraordinary items for earningsmanagement to achieve a specific purpose.The study sample is the Shanghai Stock Exchange listed companies in2008-2010. Thecompanies are divided three classes: low-profit companies, loss companies, highlyprofitable companies. This paper studies the behavior of the three group listed companies inChina making use of the non-recurring gains and losses for earnings management. And thestudy found that the earnings management, including the loss companies and profitcompany, is dependent on the non-recurring gains and losses so much. They usenon-recurring gains and losses for earnings management in different ways: the losscompanies in order to turn around; low-profit company in order to avoid losses; highlyprofitable company in order to smooth profits and avoid profit decline and so on. The thesiscollect the item data, disaggregated indicators of non-recurring gains and losses of thelow-profit companies, loss companies, and highly profitable companies. Empirical researchfound that disposal of asset gains and losses, government subsidies and other non-operatingincome are the primary means of listed companies using non-recurring gains and losses.Based on the above findings, the non-recurring profit and loss are proposed as anindependent accounting content included in the income statement, and disclosed in thebalance-sheet specifically and transparently. Simultaneously, it is necessary for theimplementation of regulatory policies to take full account of the non-recurring gains andlosses impact.