An Empirical Study On Cash Flow Manipulation

Cash flow is a very important factor to make corporate valuation, which is used by more and more investors to make investment decision. The main reason is that people always think that it is difficult to manipulate the cash flow, which can truly reflect the operating conditions of the enterprise. Many domestic and foreign scholars often use cash flow index as a referenceto measure the reality of the profit when studyingthe reported earnings management. The measurement of cash flow is based on cash basis, compared with the accrual basis, it usesless subjective estimates and judgments, and thus has less room to be manipulated.However, out of the expectations of people, there still exists the possibility of cash flow manipulation. Operating cash flow attracting the most attention of outside information users among the three types of cash flow, shows a greater possibility of manipulation. Managers can manipulate the cash flow through a number of means to artificially increase the reported data to mislead external information users, such as putting the financing cash inflows into operating cash flows, forging transactions in order to increase operating cash flows and so on. Domestic and foreign scholarshave found that there are many signs of operating cash flow manipulation. Then, what affects the cash flow manipulation? What is the result of manipulation? With these questions,based on the empirical data of listed manufacturing companies in Chinese A-share market, this paper makes an empirical study of the listed companies of China’s manufacturing industry cash flow manipulation.First, this paper reviews the research results of the domestic and foreignstudy on the manipulation of cash flows, the related theory and concepts, and summarizes the motives, methods and consequences of cash flow manipulation.Secondly, we draw on the experience of research methods in earning management, choose the listed manufacturing firms in Chinese A-share marketas the study sample for the sample period from2001to2009, make use of the "performance reverse" statistics of operating cash flow and cash flow distribution method to test the manipulation existenceof manufactureindustry enterprises before IPO. The research results show that there exist the signs of cash flow manipulation before IPO.Then this paper adjusts the modified Jones model, to define the non-manipulated cash flow and manipulated cash flow by multipleregression models. And then Iselect four variables as assumption variables, considering thedistribution of equities, operatingconditions, corporate governance and corporate development. Theempirical stage includes descriptive statistics, correlation test and multiple linear regression analysis. The results show that, Ownership concentration is negatively correlated with the cash flowmanipulation, the average age of accounts receivable and cash flow manipulation ispositively related, manager shareholding ratio and cash flow manipulation have negative relation, and the growth rate of total assets and cash flow manipulation is positivelyrelated.Finally, this paper makes a summary of the conclusions and points out the limitations and future research directions. Based on the research results, this paper makes suggestions on how to prevent and monitor cash flow manipulation.