Research On The Relationship Between Financial Assets Management And Earnings Management

On January1st, our country put the new Accounting Standards for Business Enterprises into practice, which set new requirements for recognition and measurement of financial assets. Under the new criteria in four categories of financial assets, financial assets held for trading and available-for-sale financial assets both apply the measurement model of fair value. The difference is that the unrealized gains and losses are charged directly to current profits for the first class of financial assets, while the second charged directly to capital surplus, only can to be transferred out of the sale. These rules provide the opportunity of earnings management through financial assets management. This paper researches whether the management of financial assets held for trading and available-for-sale financial assets can be a means of earnings management of listed companies.The paper can be divided into four parts:literature research, theoretical analysis, empirical tests and policy recommendations.The literature research part reviews the domestic and foreign scholars’ studying on the conception, motivation and methods of earnings management, while analyzing Chinese scholars’work on the relationship between financial assets management and earnings management. It provides theoretical background and reality basis for latter empirical research.The theoretical analysis part is based on the economic theory of agency and analyzes the possibility of earnings management through the accounting methods of financial assets. It also constitutes the possible way of earnings management through book-keeping differences between financial assets held for trading and available-for-sale financial assets. It provides theoretical basis and support for latter empirical research.The ten hypotheses of the empirical test involve in three aspects, these are classification motivation, measurement of the fair value of financial assets held for trading and sale motivation of available-for-sale financial assets, which are testified through descriptive analysis, multiple linear regression model and Probit model. The results are as follows:liquidity risk, financing needs, profit smoothing and the size of the company may influence the classification of the financial assets; Listed companies would manipulate the fair value of financial assets held for trading to maintain acceptable earnings; Both profit smoothing and increasing needs would lead to the sale of available-for-sale financial assets.On the basis of the theoretical analysis and empirical test, the last provides some solutions to improve the accounting principles regarding financial assets.