Research Of Impacts Of EVA Performance Evaluation System On Earning Management

Central enterprises as the main part of Chinese national economy, hold fast to important industries related to national well-beings and people’s livelihood, undertake the responsibility of basic economic foundation in the social system, play an irreplaceable role in the healthy and stable development of Chinese economy. At this stage, based on the growth of central enterprises, the key issues that we face is to make them stronger. The growth pattern needs to be changed. That is, from the traditional profit-oriented way to the epitaxial growth of acquisitions to value management. Performance appraisal system whose core is the economic value added (hereinafter referred to as EVA) examines the managers and employees around the value management concept in order to guide and improve managers’ way of doing business, which is the enterprise performance evaluation system of value management oriented for the managers and employees. Although this evaluation system, in theory, are still controversial, but since the EVA concept comes out, a large number of international companies have adopted EVA, the core of performance evaluation system, in practice, also achieved good results. As early as2004, the EVA theory has aroused the concerns of The State-owned Assets Supervision and Administration Commission (SASAC),during several years exploration and try,on January1st,2010, The Interim measures to check the operating results of the heads’ in central enterprises, which was second revised by SASAC, was carried out among the central enterprises. SASAC used EVA but ROE as the latest indicator in the new Measures. At this point, this event is marking that the EVA performance evaluation system which is value management-oriented has formally implemented.It has been three years since the EVA performance evaluation systemfull implemented in the central enterprises, is it applicable to China’s central enterprises? In what ways are the impacts of enterprises? These are the community concern. In this context, this thesis which is based on principal-agent theory, the theory of free cash flow hypothesis and EVA theory,using statistical analysis as a research tool to analysis the correlation between EVA performance evaluation system and the earning management The main contents and structure is as follows:The first part, introduction. This part introduce the research background, the research significance, the methods and research content, the research conclusion and the main innovation points.The second part, theoretical foundation and hypothesis suggest. In this section,we firstly descripes principal-agent theory, contract theory, free cash flow hypothesis and other related basic theories, which are the support for this paper, and then propose appropriate assumption.We support that the implementation of EVA performance evaluation system does can inhibit the earnings management phenomenon of central enterprises.It is prepared for empirical test later.The third part,study design. Based on the hypothesis made previously, we first used the Jones-model to measure the degree of earnings management, and then select the appropriate explanatory variables and control variables,at last we constructing a regression model to prepare for subsequent empirical tests.The fourth part, the empirical test for the influence of EVA performance evaluation to earning management of the central enterprises. It selects the listed central enterprises whose actual controller is SASAC as research sample including data from2008to2012.Making T-test, multiple linear regression analysis and Logistic regression analysis to test the changes of earnings management phenomenon which brings by the implementation of EVA performance evaluation system.The fifth part, the conclusions and prospects.The main conclusions achieved in this part are:first, earnings management of the central enterprises does exist, but after the implementation of the EVA performance evaluation system, it is significantly decreased. Second, Free cash flows owned by central enterprises are to some extent led to the phenomenon of earnings management Third,the implementation of EVA performance evaluation system does not directly inhibit the phenomenon of earnings management, but it can indirectly curb the phenomena by reducing the influence that arises by free cash flow. In addition, this section we also make an analysis about the conclusions, put forward several relevant policy advices, pointed out the limitations of the study and indicate the further research directions.The innovation of this paper lies in two aspects, one aspect is that we choose the widespread phenomenon of earnings management as starting point to investigate the effectiveness of EVA performance evaluation system.It’s perspective and content are fresh. The other aspect is to Empirical perspective,we remedies the inadequacies of previous studies and then make a more appropriate model for the research. Firstly based on the formal implementation of EVA Performance Evaluation System,we achieved912sample data of five years (2008-2012) to make up the limitations of previous studies in sample selection. Secondly, this paper create a new variable that the cross-variable of free cash flow and EVA performance evaluation, to test if EVA performance evaluation system can governance the earning management phenomena by supervision the abuse of free cash flow. This is the main innovation of this paper.