Study On Earnings Management Of Listed Companies Based On Prospect Theory

This thesis studies on earnings management, sorts out whether Chinese iron and steelindustry listed companies’ earnings management behavior exists or not, and whether thesecompanies have the motivation to adjust earnings, and the means they use to finish earningsmanagement and the amplitude, and to analyze the enterprise’ Risk propensity onearnings management, combined with relevant theory of Prospect Theory, remindfinancial information users to pay attention to listed companies’ earnings data, at the sametime, they could judge listed companies’ investment risk propensity, and provide areference for investment or regulatory behavior for information users. The significance ofthis thesis mainly has two aspects, through empirical research, distinguish the existence ofearnings management in listed companies in Chinese iron and steel industry, and find theevidence of earnings management. If the enterprise stakeholders could find out somecommon features for Chinese steel industry listed companies’ earnings manipulationbehavior, then through the analysis of earnings quality of the listed companies’, theenterprise stakeholders will be able to find solutions to protect their own interests, so as tomaintain the order of capital market for Chinese securities market, at the same time, couldlet the market fully play its role in optimizing the allocation of resources. At the same time,the evidence could provide useful clues to formulate and improve accounting standardsfor business enterprises and Chinese government departments for the supervision ofsecurities markets, which can provide strong information to support our country to furtherregulate the securities market. From the academic point of view, the previous studies forChinese listed companies’ earnings management only in some specific purpose, this thesiscombined earnings management behavior with prospect theory, has certain reference valuefor the research of risk propensity of listed companies.In this thesis, predecessors’ studies have been summed up. On this basis, firstly, thedefinition of earnings management is defined; secondly, the existence and possibility of theearnings management behaviors of domestic listed companies are judged on the ground ofearnings management experience studies; thirdly, the commonness of earnings managementin domestic listed company is analyzed; moreover, this thesis analyzes the modelsemployed in the earnings management by China’s first loss listed companies, deficitsending listed companies, continuous earning companies and continuous loss companies, tostudy the existence and degree of earnings management in China’s domestic listedcompanies. Then, the paper further studies the risk tend of earning management inperspective of prospect theory, followed by the analysis of relations between earningsmanagement and risk tend, drawing the conclusion that in the group of which companies end their deficits, negative earnings management are employed to a small extent, and in thegroup of first loss companies, negative earnings management are employed to a large extent,while in the group of continuous earning companies, earnings management are taken to asmall degree. In this paper, the author makes advices on the determination of risk tend oflisted companies for information users from the perspective of prospect theory, provides anew angle for earnings management study, and makes policy suggestions on the regulationof earnings management behaviors of listed companies.