Earnings Management Of Listed Companies In China Based On Related Party Transactions

In China, the Related-Party Transactions are commonly-seen in daily business activitiesof Listed Companies, and the quantities and sum of the transaction have witnessed anincreasing trend. Initially, the Related-Party Transactions are generated to meet the potentialeconomic needs of the enterprise effectively, and to reduce transaction costs and businessrisks. While, being transferring resources or items of obligation between Listed Companiesand related parties, as well as the relevant, complex and concealing nature of the transactionssubjects, Related-Party Transactions may become surplus management tool of the ListedCompany. Surplus management behavior in Related-Party Transactions of the ListedCompany has already led to the false reflection of the company’s economic strength andprospects according to accounting information, misleading of the investors, the seriousdamage to the interests of small investors, and harm to the optimization of resource allocationin stock market. Therefore, it is of great importance to research on surplus management of theRelated-Party Transactions in Listed Company.On the basis of status quo, this thesis firstly explains the fundamental theories of theRelated-Party Transactions and surplus management respectively. It is proved that theforming of Related-Party Transactions is inevitable, and they may be used by ListedCompanies as a means of surplus management. Then, the concept of surplus management isdrawn. Secondly, from the internal and external actions, the motives of using Related-PartyTransitions in making surplus management of Listed Companies are analyzed; what’s more,six main measures are cited to show the China’s current situation, the hazards and underlyingreasons. Thirdly, by adopting the sample of China’s Shanghai and Shenzhen A-share, thethesis proves China’s Listed Companies’ widespread usage of Related-Party Transactions insurplus management empirically. And successively, the thesis comes to the followingconclusions: the recovered companies and the companies of high ratio of debt are prone touse Related-Party Transactions in managing surplus, however, the degree of Related-PartyTransactions in Listed Companies of existing allotment of shares are similar to othercompanies. Finally, based on the status of Related-Party Transactions and empirical research,this thesis provides the suggestions from the perspective of macroeconomic policy, company governance in Listed Companies’ Related-Party Transactions. The core point is: Formacroeconomic policy, the standards and regulatory policies should be improved, and thesame time, the regulatory authorities should focus on the Related-Party Transactions inrecovered companied and the companies of high ratio of debt, and strengthen the supervisionof intermediaries in accounting firm. For the company governance, the Listed Companiesshould improve the mechanism of internal company governance, establish and improve theincentive mechanism to control the behavior of major shareholder, protect the interests ofminority shareholders, and promote the healthy and stable development of China’s securitymarket.