Kesearch On The Impact That Institutional Environment On Companies’ Earnings Management

Managers with motivations like contract motivation, capital market motivation and political cost motivation may use various means to manage earnings to achieve personal interests. The opportunistic behaviors will harm the interests of investors and have negative influences on the development of capital market. So how to inhibit earnings management is a hot topic in the field of corporate finance.As a vast country, a broad unbalance including political, economic and legal unbalance exists in the east and west regions of China, and the unbalanced institutional environment has impact on the choices of company financial policy. This paper studies the institutional environment’s impact on two kinds of earnings management and the choice of earnings management under institutional environment through empirical analysis of4484samples of2003-2010manufacturing listed companies in China.The study shows that (1) The institutional environment based on regional differences have impact on both accrual-based earnings management and real earnings management-companies in regions with better(worse) institutional environment have lower(higher) level of earnings management.(2) Under certain institutional environment, the degree of accrual-based earnings management and real earnings management increases or decreases in the same direction. The preference of managers for the choices of earnings management is related to the characteristics of the company.