Rationing Shares, Earnings Management And The Performance Of China’s Listed Companies

Earnings management in the seasoned equity offerings has always been a hot issue in the academia circles. The domestic and overseas scholars had done extensive research about it. In China, listed companies are having a preference for rationing shares for a long time. In order to meet the qualified line of rights issue or to enhance the confidence of stakeholders, earnings management always exists in the process of rationing shares. Previous studies for earnings management in rationing shares were focused on the study of accrued earnings management. However, with the continuous improvement of laws and regulations and accounting standards, it is no longer able to meet the needs of earnings manipulation for companies to just rely on the accrued earnings management. Then the real earnings management which is more concealed and flexible began to be widely used. Real earnings management is kind of earnings management which aims at the real business activities through sales controls, production controls and cost controls. Although it may increase the current revenue, it is still a sub-optimal choice. Because it changed the original enterprise business strategy, it may have some negative impact on future long-term development of enterprises. So to study the effects of real earnings management on the corporate performance after rationing shares will have more theoretical and practical significance.This paper uses both the accrual and real-based earning management models to investigate the declining performance of China’s listed companies after the first allotment from1997to2010, and compares their different effects on firm performance. The results are as follows.First, the listed companies both used the accrual and real-based earnings management before rationing shares to raise profit. And, the listed companies just used the accrued earnings management in the year before the last year of rationing shares. But the real earnings management was used in the two years before and the current year of rationing shares. What’s more, the real earnings management was used mainly through sales control and production control. Second, to some extent, the real and accrual-based earnings management have different effects on the declining performance. The effects on the declining performance of the real earnings management has a greater and longer effect on the declining performance.