The Study Of The Effects Of The Fair Value Use On Earnings Management

Since being used firstly, fair value has been controversial. Especially, thebreaking out of the financial crisis in2008caused financiers to denounce thefair value model. Because of the convergence of the Chinese companies’accounting standards with the international standards since2007, fair valueappears to be a bright spot in the guidelines.What’s impact will its applicationproduce on the earnings management of Chinese listed companies? Will itcause serious earnings manipulation problems as some scholars believed?In this paper, a method of combining normative research and empiricalresearch is adopted in the theoretical research.In the theoretical research,firstly, reading a lot of previous studies to summarize and absorb the essence,then, making research on its basis and clearing the research methods.Secondly, giving clear definitions to the two concepts in the paper—fair valueand earnings management to pave the way for subsequent research. Thirdly,introducing the fair value’s the course of development in our country in orderto analyze our current market environment that fair value will work in.Elaborating the five projects that fair value would involve in the AccountingStandards for Chinese enterprises and making specific analysis on eachproject to find what may give the company earnings management behaviorspace. On the basis of the above theoretical studies, the five hypotheses areput forward. Select listed real estate companies in2012as our sample andjoin virtual variables which mean the impact on earnings management of fairvalue application projects on the basis of the extended Jones model putforward by Jianqiao, Lu. After the research model proposed, carry outdescriptive statistical analysis and regression analysis through the dataprocessing and analysis software, and then test the hypothesis.Through the above analysis, we can come to a conclusion that theapplication of the fair value model on accounting standards won’t have veryserious issues of earnings management like some scholars considered. Thefair value just used in financial instruments and the business combinations notunder common control has a more significant impact on earnings management. The other three projects: debt restructuring, the exchange ofnon-monetary assets and investment real estate, although they also introducethe fair value approach, there are no significant impacts on the earningsmanagement behavior. The paper suggests that the use of fair value is stilllimited, and its application environment needs to be perfect. Finally, the papergives suggests and measures to solve the problems above and to prevent theabuse of fair value to make earnings management.