Empirical Research On Earning Management Before Private Equity Placement By Chinese List Companies

The behavior of earnings management in the Process of equity financing by listed companies has been a hot issue in academic circles. Due to the ownership structure of "only one big share", it makes the large shareholders to be in a status of strong control in Chinese listed companies, there are rare challenges and resistance from other shareholders in decision-making. These listed companies show a strong preference for rights offering and seasoned equity offering to raise funds. Under the circumstances of imperfect corporate governance, there is lack of legal system which protects the minority’s interests; the shareholders may take advantage of private equity placement to transfer interests by earnings management. In order to obtain qualification of rights offering, they earn seasoned equity and increase issue price, thus achieve the purpose of raising money madly in securities market, there is a widespread opportunism behavior of earnings with the large shareholders, so as to invade the interests of minority shareholders. So this paper uses the data of listed companies which is taking private equity placement from2009s to2011s, so as to study the behavior of earnings management before private equity placement, and to reveal the relationship between the large shareholders and the behavior of earnings management. This paper hopes to give institutional investor and supervisor advices about the process of some earnings management.The paper conducts the theoretical analysis from aspects such as the motivation, effect of large shareholders on earnings management before private equity placement and economic consequences of earnings management. This study will take listed companies which have implemented private equity placement from2009to2011as a sample, conducts the theoretical analysis from aspects such as existence of earnings management before private equity placement by Chinese listed companies, approach of different types of earnings management, effect of large shareholders on earnings management and economic consequences of earnings management. The empirical result shows that it exist earnings management one year before private equity placement by Chinese listed companies. And it also shows that it will carry out negative earnings management when listed companies takeover the controlling shareholder and its subsidiaries’ assets by private equity placement. And when listed companies raise funds from other institutional investor, it will carry out positive earnings management.In addition, the higher share proportion of large shareholders may have motive to manage earnings. Finally, the empirical result shows that the higher degree of earnings management, the worse stock price performance after private equity placement is. It suggests that degree of earnings management before private equity placement by listed companies is negatively related to stock price performance.The main content of this study is placed as follows:the first part is the introduction, conducting research background, research aims and significance and so on. The next part is literature review, reviewing the literatures of earnings management at home and abroad. The third part is the part is part of theoretical analysis. The paper conducts the theoretical analysis from three aspects such as the motivation, and puts forward hypothesis. The fourth part is the part of empirical analysis of earnings management before private equity placement by Chinese listed companies.In the light of theoretical analysis, the paper firstly verify existence and approaches of earnings management before private equity placement by listed companies, then analyze the effect of large shareholders on earnings management before private equity placement by listed companies and its economic consequence. The fifth part is conclusions of research and policy suggestions.