The Correlative Study Of Earnings Management And Bank Loan Decisions

Banks as a key part of financial industry play a pivotal role in China’s economy. Since the underdevelopment of money market, the bank loan turns to be the major financing way. As the world economy experiences faster globalization and soaring competitive pressures, the credit risk that banks face is increasing. Therefore, to monitor and control risks effectively is of vital significance for banks. In order to learn the credit risk, we have to look inside the accounting information, which conveys key messages of a company’s repayment capacity. While this can’t be easy under the circumstance of earnings management. If banks can identify earnings management, they can lower the credit risk and make better decisions to some extent.Means of earnings management can be divided into:Accounting discrepancies, Accrual-based earnings management and Real earnings management. Managers generally manage earnings through taking advantage of accounting policies, specific transactions and specific production&operation alteration. Traditional earnings management refers to accrual-based earnings management, and this kind of earnings management does not change the business strategy of a company, because it has no impact on the cash flow. Conversely, real earnings management affects the business strategy as well as its cash flow. Meanwhile, it is so hidden and diversified that it obtains increasingly attention of scholars.Conclusions in this paper:The level of accrual-based earnings management and real earnings management does not have any relationship with bank loan decisions, no matter long term loans or short term loans.We selected2001-2012as study period, sifted out all the relevant data of1618A-share companies, utilized the modified Jones model and real earnings management model to study whether bankers can identify accrual-based earnings management and real earnings management when making bank loan decisions.