Earning Management Behavior In M&A And Its Effect On Performance In China Manufacturing Industry

With capital market developing, company growing up and industry updating, mergers and acquisitions (M&A) become an important strategic decision of managers. It has become a tendency in our capital market. As we all know, M&A needs large amount of money, which will promote company to find money, including equity financing and debt financing. In our capital market, to issue corporate share and bond should match to some financial limitations, such as profitability and capital structure. At the same time, our country’s financial report standards give managers some freedom to choose accounting policies. So under this condition, managers tend to manage earnings to whitewash financial reports to guarantee M&A smoother and cheaper. Do companies manage earnings in the process of M&A? What’s the destination of earnings management? And will the earnings management influent M&A performance?Under the foundation of the existing literature, I chose the steel industry to figure out if companies which merge exist the behavior of earnings management in the year before the M&A and the year of M&A, and to study the destination of M&A and its influence on M&A performance. The study outcome shows that, companies tend to manage earnings in the process of M&A, and they prefer positive earnings management. These behaviors have a significant negative effect on the performance of M&A.The innovation points of the article are in three aspects:firstly, the article expands the research range and framework of earnings management; secondly, the article makes the connection between M&A, earnings management and the performance; finally, the article explores the reason of poor performance after M&A.The main deficiency of this article is empirical analysis also needs to be expanded in the latter research.