Empirical Research On The Earnings Management Before Public Issuance Of New Shares And Private Equity Placements In Listed Companies

In China’s existing financial reporting system, the surplus of information has always been the concerns of investors in the investment. China’s corporate accounting standards require the use of accrual production as the basis of accounting; accrual gives the accountant a subjective definition of income and expenses, which provide vast space to the listed company’s earnings management behavior. In recent years, the earnings management behavior in equity financing in the process of listed companies has attracted attention in the academic world. Domestic and international scholars have conducted deeply theoretical and empirical research from different angles, and draw many meaningful conclusions and formed a theory of the system. However, these studies mostly focus on the earnings management caused by the initial public offering or placement, but not give a comprehensive study for the public issuance and private placement of new shares. The purpose of this thesis is to provide a thorough research on the earnings management behavior of public issuance of China’s listed companies and directional issuance of new shares. This thesis finds that the existence of earnings management behavior in both public issuance of listed companies and private placement of new shares. However, these two kinds of earnings management behaviors are different in terms of extent and direction. In particular, there is a positive earnings management in the public issuance of new shares, and earnings management of directional issuance of new shares is related to the type of private placement of new shares. This study has a very important theoretical and practical significance for research on the earnings management, regulatory authorities, policy makers and investors in the investment decision-making behavior.By analyzing the motivation of earnings management in listed companies before public and private placement of new shares, this study finds that in order to qualify the public issuance of stock and successfully gain higher issue price and issue income, listed companies have an incentive to implement positive earnings management before the public issuance of new shares. However, the type of private placement of new shares can affect the manner of earnings management of listed companies in China. This thesis selects A-share listed companies which have already made public and private placement of new shares in the year of2006-2010as the study sample. This study conducts empirical analysis of the existence and manner of earnings management before these listed companies issue public and directional new shares. The empirical results indicate that there is a positive earnings management in the public issuance of new shares of listed companies. As for the private placement of new shares, earnings management is related to the type of private placement of new shares. Negative earnings management exists when the controlling shareholder and its subsidiaries purchase the assets of controlling shareholders and its subsidiaries while positive earnings management exists when these listed companies make private placement of new shares and raise funds from other institutional investors.The main content of this paper is organized as follows:the first part is the introduction, which introduces the research background and significance, and proposes problems that this study intends to reveal. The second part is a literature review, which sorts out domestic and foreign literature on earnings management, and gives profound comments. The third part is the theoretical analysis section of earnings management of listed companies in China before their public issuance of new shares and private placement of new shares. This thesis firstly describes the concept, characteristics and means of earnings management, then analyzes the motivation, manner and size of earnings management in listed companies which publicly and directed issuing new shares, and makes relevant assumptions. The fourth part is the empirical analysis section. According to the previously proposed hypothesis, the article first verify the existence and the way of earnings management in listed companies before they issue public and directional new shares. Then this study uses multiple regression analysis of factors affecting earnings management before public offerings and private placement of new shares. The fifth part of the study provides conclusions and policy recommendations.