The Relationship Between Accounting Firms Reputation And Earnings Management

With the development of media industry and reputation mechanisms, more and more companies and organizations began to value their reputation, accounting firms are no exception. There are many experts and scholars earring out a lot of theoretical and empirical research on the formation mechanism of the accounting firm’s reputation. The financial statements of listed companies is an important basis for outside investors to understand the company and make investment decisions.However,earaings management has become a tool to confuse outside investors and even the corporate holder. So many stakeholders want to use auditing firms reputation to determine the true extent of company’s financial reporting.This study is for the purpose of whether auditing firms reputation could inhibit earnings management of listed companies,and whether there is different degree of influence for companies of different nature of property rightThis paper researches the impact of auditing firms reputation on company earnings management.This paper applies sample of3292that are listed on Shanghai and Shenzhen Stock Exchanges from2009to2012,applies Modified Jones Model to evaluate the degree of earnings management of the sample companies,objects auditor size and the degree of specialization of the industry as reputation variables of auditing firms, uses Ordinary Least Squares regression method to verify the relationship between auditing firms reputation and earnings management of listed companies.The research results are listed as followed.Auditor size and industry specialization are significantly negatively correlated with the extent of earnings management as reputation proxy variables,which indicates that auditing firms reputation can suppress the extent of earnings management. In addition,compared with non-state-owned enterprises,the two variables of auditing firms reputation show a more important role for earnings management for in state-owned enterprises,which shows that compared with non-state-owned enterprises,auditing firms reputation is more likely to suppress earnings management of state-owned enterprises.