Product Market Competition And Earnings Management

The fever of the researches on earnings management has never cooled down, especially the researches on the real earnings management has risen up another fever. According to the domestic and overseas documents, the researches on earnings management are from the point of corporate internal governance. They are focused on the study of the relationship between earnings management and internal governance mechanism, such as: ownership structure, board of directors, board of supervisors, managerial compensation, etc.. The relationship between the earnings management and product market competition which is included in external governance mechanism has been studied relatively less. Several documents have researches on the influences that the product market competition has on earnings management, however, the earnings they used are usually accrued earnings, not the real earnings. This paper studies the influences that the product market competition has on earnings management from the perspective of product market competition.Based on the Homo Oeconomicus Postulate, principal-agent theory, information asymmetry theory, signal transmission theory, etc., this paper analyzes the influences that the product market competition has on earnings management, and later, it separates the total earnings into two parts: one is accrued earnings; the other is real earnings based on the product market competition mechanism and informational mechanism. The sample this paper uses is from Shanghai and Shenzhen Stock Market, China, during the year 2009 to year 2013. And then this paper uses STATA 12.0 software and EXCEL to do the empirical test with the sample’s data. The empirical results show that, the greater the product market competition is, the less both the real earnings management and the accrued earnings management are, and the influence on real earnings management is more than the accrued earnings management. Further, as the product market competition is greater, the corporate will do more management on the process of manufacturing and sales, and less management on fees.Last, this paper proposes some suggestions on the enhancement of product market competition, internal governance mechanism and the relevant laws.