Research On The Effect Of Large-size Accounting Firm On Earnings Management

During recent years, the CPA profession in China developed rapidly. In2007, the Chinese Institute of Certified Public Accountants (CICPA) released "Opinions about Promoting Local Accounting Firms to Be Larger and Stronger" to promote development of local accounting firms. In this document, CICPA proposed the development strategy of local accounting firms for the first time. As the response to the document, a wave of consolidation of local accounting firms rose, and some large-size local accounting firms appeared. However, the BIG4are still the symbols of high-quality auditing, and obtain high reputation.The earnings management of listed companies has been a hot area of research, with large amount of researches on accrual earnings management been carried out, accrual earnings management has been widely recognized by academic community, real earnings management has been the new hot area of accounting research. In2012, China National Petroleum Corporation (CNPC) obtained9.4billion Yuan government subsidy, while realized115.3billion Yuan net profit. CNPC was criticized that CNPC made petroleum refining business unprofitable deliberately by real earnings management. In this case, more research scholars and professors concern with the real earnings management of native listed companies, especially state-owned companies, and the effect on earnings management from accounting firms. This thesis carries out the research in the above background.This thesis defines International BIG4and the Native BIG5by cluster analysis method. The result indicates the effect on earnings management of the International BIG4is stronger than that of the Native BIG5, and it is possible for the International BIG4to recognize real earnings management activities. The level of real earnings management activities of state-owned enterprises is higher than that of non-state-owned enterprises, while the level of accrual earnings management activities of non-state-owned enterprises is higher than that of state-owned enterprises. However, the result of multiple regression analysis only proves the latter. Furthermore, both the International BIG4and the Native BIG5prove the stronger effect on earnings management of non-state-owned enterprises than the effect on earnings management of state-owned enterprises.The structure of this thesis is arranged as follows:Chapter1Introduction:In this chapter, the background would be firstly analyzed to find out the subject of this thesis. Then introduce the aim, significance, main content structure, research methods and innovations of this thesis.Chapter2Literature Review:In this chapter, the thesis would review the literatures of earnings management, and its relationship with size of accounting firms and nature of ownership.Chapter3Theoretical Basis and Research Hypothesis:In this chapter, the thesis would introduce the relative theories first, and propose research hypothesis based on the theories introduced. Then design research model to make regression analysis.Chapter4:Empirical Analysis and Robustness Test:In this chapter, the thesis would make empirical analysis with STATA12.0to demonstrate the hypothesis proposed in chapter3, and test the robustness of the empirical analysis.Chapter5:Conclusion and Prospect:In this chapter, the thesis would make a conclusion of the thesis and analyze the future research prospect of the subject of this thesis.The main contributions of this thesis are presented as follows:(1) Most existing literatures sort the accounting firms as BIG4and Non-BIG4, or BIG9and Non-BIG9, which may not apply to the condition of China. Sorting the large size accounting firms as IBIG4and NBIG5should be much more appropriate. This thesis offers new thinking for subsequent research.(2) Most existing literatures only focus on the accrual earnings management, this thesis would include real earnings management, which will enrich relative literatures about real earnings management.(3) Few literatures focus on the relationship between nature of ownership and size of accounting firms or earnings management. This thesis will enrich relative literatures about nature of ownership.