Correlation Between Earnings Management And Investment Efficiency Of Listed Companies

Since the beginning of the1980s, the Western financial accounting theoristsworking on earnings management, earnings management has become one of the majorempirical accounting researches in Western countries, especially the United States. InChina, earnings management is a new problem with the emergence of the stock ofCorporation.So far, scholars have conducted extensive analysis and testing.aroundearnings management motives, means, identification methods, suppression measuresand economic consequences.For the economic consequences of earnings management, the traditionalresearches main focused on how corporate earnings management is the impact of thecorporate contract and investors, creditors and other stakeholders, only a smallliteratures involving earnings management impact on the internal decision-making. AsBar Gill and Bebchuk (2002) pointed out that the companies of earnings managementare easier to carry out ineffective investment projects, because the company can getlow-cost funds by exaggerating operating results. Wang (2005) suggests that financialfraud companies more tend to invest high-risk projects. Similarly,the studies of Kediaand Philippon (2009) also found evidence of over-investment during the companymanipulating earnings.From the perspective of investment efficiency,the paper studies the economicconsequences of China’s listed companies in the social context of earningsmanagement, the use of theoretical analysis and empirical method of combining,usingall2011-2012Shenzhen and Shanghai A-share listed companies in empirical research.The results showing that: earnings management behavior will reduce the efficiency ofinvestment. On this basis, the paper divides earnings management into two sets ofpositive earnings management and negative earnings management, Subsequently,these two sets of data do regression analysis with the investment efficiency,respectively. The results showing that: earnings management and insufficientinvestment is negative correlation, while the regression results of positive earningsmanagement and insufficient investment are not significant, This shows that thecompanies of negative earnings management is more likely to happen to the lack ofinvestment; negative earnings management and excessive investment、positiveearnings management and excessive investment are both positively correlatedappear.This shows that the negative earnings management companies may also occurthe phenomenon of over-investment, because negative earnings managementcompanies generally manipulate profitsby smoothing profits or minimize their profits,and its purpose is to make profits changed greatly, but enterprise does not change thecash flow and investment capacity; the companies of positive earnings managementare more likely to over-investment. This paper concludes: earnings management is notonly affect investment decisions of its outside investors, and also affect the companiesof investment efficiency, damage the efficient allocation of marketing resources.Therefore, We must adopt effective measures to curb the company’s earningsmanagement behavior.