A Study On Chinese Investor Protection And Earnings Management Of Listed Companies

For a long time, earnings management has been a common phenomenon amongthe listed companies all over the world.This issue is more outstanding in China forit’s relative poor investor protection. We can strengthen investor protection to weakenearning management which can make a contribution to realizing the accounting goalsof China—reflecting fiduciary duty and relevant to decision making. This is alsomeaningful for protecting investors’ interests and building an efficient, transparentand steady securities market.This essay makes efforts to do a systematic study on the effect of investorprotection on earning management. I take the1994-2011semi-annual datas alltogether36periods as the study periods and the listed company except the financialcompanies of Shenzhen and Shanghai securities markets as our study objects. I adoptthe earnings distribution method to measure the prevalence of earnings managementto avoid profit loss as the explained variable while setting the investor law protectionindex, equity restriction ratio, audit strength etc as explaining variables.This article aims to discuss the relationship between investor protection andearnings management through theoretical analysis and empirical method. Theempirical study shows: the prevalence of earnings management decreases incorrespondence to the strengthening of investor protection laws. The investorprotection laws of China are effective. The companies showed a higher prevalence ofearnings management when a negative impact affects the macro-economy. Therelation between audit strength and earnings management is dubious. The increase ofequity restriction ratio can’t decrease the prevalence of earnings management.Meanwhile, Earnings management to avoid profit loss is general among Chineselisted companies.