The Research On Chinese Listed Companies’ Earnings Management By Abnormal Accruals And Real Activities Manipulation Before And After The IPO

Since the1980s, the western scholars began doing the research on earningsmanagement, developing up to now, their researches mostly were based on the empirical,and put forward a lot of theoretical model, formed a relatively comprehensive completetheoretical system. The generalized earnings management includes abnormal accrualsand real activities manipulation, however, most of researches literature have ignored thereal activities of earnings management. In this paper, we study the generalized earningsmanagement behavior of China listed companies before and after IPO(Initial PublicOffering), so, we join the real earnings management to us researches. Domestic andinternational researches on earnings management models mostly were accrual earningsmanagement models, the most popular model was the modified Jones model, which wasconsidered by the most widely scholars, while real earnings management econometricmodels only was the Roychowdhury model, therefore, we are using the two mainmodels to measure the degrees of the earnings management in this article.There are lots of academic literatures about the listed companies’ earningsmanagement behavior in the process of IPO at home and abroad. Unlike previousstudies, this paper joins real earnings management, inspecting the earnings managementbehavior of listed companies before and after IPO in our country. The research Methodsof this study is: First, comparing the listed companies’ accrued and real earningsmanagements of their differences and their trends before and after IPO two years;Second, testing the relationships of accrued and real earnings managements in the IPOprocess, whether them have an alternative relationships; Third, examining theconnections between the performance decline of companies and the real and accruedearnings managements behavior in the IPO process; Fourth, inspecting the relationshipsbetween IPO underpricing and the accrued and real earnings managements behaviorprior to the companies listing; Lastly, inspecting the earnings management motivation ofthe retaining the listed stock and refinancing after the companies listed.This paper selects Chinese A-share IPO companies as samples from the year2008to2010, and selects these companies’ financial data before and after the IPO from theyear2005to2012. We compare the two type of earnings management about abnormalaccruals and real activities manipulation during before and after IPO two years, and testthe differences of them. We found that: Firstly, Chinese listed companies had theearnings management of abnormal accruals and real activities manipulation, which wassignificant during before and after IPO two years. What’s more, the abnormal accrualsin the year of IPO were maximum, while the real earnings management had a risingtrend in the whole process before and after the IPO two years. Moreover, the averagelevel of accrual earnings management is greater than zero in the IPO process, but theaverage level of real earnings management less than zero; Secondly, two types ofearnings managements have no alternative but they have a combinations during IPO time; Thirdly, the listed companies significantly have an earnings performance landslideduring the process of IPO, and its earnings performance is reducing year after yearduring that time, the earnings performance was declining significantly related to theabnormal accruals, which the greater degree of the earnings management were, thegreater level of the earnings performance declined. However, the earnings performancedeclining not significantly related to real activities manipulation, so, the real earningsmanagement is not the cause of declining performance; Fourthly, the level of IPOunder-pricing and the level of abnormal accruals and the abnormal sales manipulationhad a significantly positive correlation before IPO one year; Lastly, after listing, thecompanies’ earnings performance was declining, when their performance fell toprofit-near-loss range or weight-loss range, or also fell to near-refinancing range, thecompanies had a significant real earnings management motivation to retain the listedstock and refinance, but, the accrued earnings management motivation was not enoughsignificant.