The Research Of The Impact Of Government Supervision System On Earnings Management

The complete supervision system of listed companies includes company establishing system, issuance system, initial public offerings system, seasoned equity offerings system, transaction system and delisting system. Among them, the delisting supervision system can achieve the goal of choosing the fittest ones in the securities market, allocating the resources optimally, protecting the interests of investors and regulating the securities market. The delisting supervision system in China mainly includes special treatment, suspension for listing and termination for listing. The evaluation of the performance of listed companies is no longer simplified. However, apart from the supervision system on the revocation of special treatment requires the quality of profit, the core of the delisting system in different stages is still based on net profit, rather than the net profit after deducting extraordinary gains and losses.Researches show that "the earnings management induced by the supervision " existed in the listed companies, which means that a listed company has the motivation of the "shell" to adjust accounting earnings by using earnings management to avoid the delisting supervision system. Through the use of the Mann-Whitney U test, this paper finds that companies with one-year deficit use accruals and extraordinary items of the earnings management to turn around and avoid special treatment; companies with two-year deficit use real events and extraordinary items of earnings management to avoid the penalty of suspension for listing; companies with three-year deficit use the extraordinary items of the earnings management in order to avoid the termination for listing. The Logist regression model and the analytical methods of probability distribution both illustrate that extraordinary items has a significant impact on the listed companies with deficit, while the main business growth in the company’s losses have no actual effect. Overall, listed companies with deficit mainly use extraordinary items of earnings management in order to avoid delisting supervision, whereas the actual business performance and sustained profitability of the company has no substantial improvement. In other words, supervision system use net profit as the indicator, rather than net profit after deducting extraordinary items, induces listed companies adopt the earnings management to change extraordinary items.Using the Mann-Whitney U and Kruskal-Wilks H test to make analysis and comparison of the financial position of the listed companies manipulating extraordinary items of the earnings management to avoid delisting supervision and those been special treated, this paper found that although their financial position are better, they still deteriorated compared to the companies with actual healthy financial position. Delisting supervision system with net profit as the indicator can differentiate the listed companies through their financial position to a certain extent, nevertheless, its power is limited.Finally, on the basis of the study, make policy recommendations for improving the delisting supervision system and inhibiting earnings management.