The Choice Of Accrual And Real Earning Management For The Overvalued Equity Companies

According to the modern enterprise theory, the company’s owners are highly separated from managers. Indeed, this agency relationship cause interest inconsistent, information asymmetry and so on, which leads manager to implement the earning management. If company’s equity price is higher than its intrinsic value, the motivation of earning management will be needed more because that agency conflicts between owners and managers goes serious than ever as well as same situation for inconsistent and information asymmetry. Meanwhile, earning management also have the high concealment, high hazard feature-real earning management, which are not researched in earning management system. With time period of overvalued equity firm goes longer, managers are highly motivated to utilize earning management, but considering later offsetting feature of accrual earning management, the manager should make flexible choice between accrual and real earning management behavior. Therefore, this article is based on long-term period to study influence of overvalued equity on choice of accrual and real earning management behavior.Our study start from the phenomenon of overvalued equity for quoted company, analyzed income-increase and income-decrease earning management motivation for Overvalued equity firm, and analyzed that, in long-term vision, how managers of overvalued equity firm choose between accrual and real earning management behavior, On another hand, the Institutional background will affect the choice of earning management behavior of overvalued equity firm. So, considering china special capital market, our article, analyzed the influence of overvalued equity firm on the choice of accrual and real earning management from ultimate controlling shareholder, investor protection, change of accounting system. So we choose 9542 A quoted company for empirical study and Conclusions as below:(1) quoted company use income-increasing accrual management for short term situation, but the more longer time is, the lower income-increasing accrual management level it gets and the effectiveness of income-decreasing real earning management rises more obviously. (2) Both state-owned company and non state-owned company choose the earning-decreasing real earning management in whole period of overvalued equity, But feature of ultimate controlling shareholder has no distinct influence on the choice of accrual and real earning management behavior for overvalued equity firm. (3) After implement of new accounting regulations, in whole period of overvalued equity, the income-increasing accrual earning management and income-decreasing real earning management of overvalued equity firm are higher than before. (4) The weak-investor-protection firm have strong motivation to choose income-increasing accrual earning management for short-term and income-decreasing real earning management for long-term.These conclusions indicate that the company has transfer signal to the market by using income-decreasing earning management to correct market value. Meanwhile, china’s special institutional background also affect the company’s choice of accrual and real earning management behavior. In summary of above conclusions, this article gives sufficient advice about formulating capital market, formulating accounting standard, strengthening the protection of investors.