The Study On The Effects Of Business Cycle And Industry Prosperity On Real Earnings Managementin The Listed Companies In China

As the development of the accounting standards and the improvement of the regulation, it is harder to use accrual-based earnings management activities to manipulate the profits. Thus, the company is more likely to adjust earnings by the method of real earnings management. Real earnings management activities received wide attention for the reason that they are difficult to be found out by the public. In China, as the expansion of capital market, the study on real earnings management has gone deeper and deeper. But most of the researches only focus on real earnings management activities and ignore the effects of macroeconomic changes on real earnings management activities. Therefore, during the development of our economy, it is worth to study how business cycles and industry prosperity index affect the magnitude of real earnings management because it will help identify the behaviors of real earnings management in the listed companies, improve the quality of information disclosure, provide a reference for the securities market supervision, and encourage the capital market to develop healthily.Based on the principal-agent theory, contract theory and the theory of asymmetry information, this paper analyzes the motivation of real earnings management activities in the first step and then discusses how different business cycles and different industry prosperity index have influence on real earnings management. It is helpful for understanding the behaviors of real earnings management in the listed companies in China from the theoretical angle. Meanwhile, I use multiple regression models to examine the effects of business cycle and industry prosperity index on the magnitude of real earnings management by selecting the sample of A-share listed companies over 2002 to 2013. As the result, it shows that business cycle and industry prosperity index have a significantly impact on magnitude of real earnings management. Compared to economic expansion period, the degree of real earnings management is greater during economic contraction period. Compared with the low industry prosperity index, the magnitude of real earnings management is greater when the industry prosperity index is high. By further research, it is clear that the magnitude of real earnings management is greater during the period when the macroeconomic environment is in contraction period and the industry prosperity is high than the period when the macroeconomic environment is in expansion period and the industry prosperity is high. It is also greater during the period when the macroeconomic environment is in expansion period and the industry prosperity is high than the period when the macroeconomic environment is in expansion period and the industry prosperity is low.\In the end of this paper, based on the conclusion of empirical results and the Chinese background, it is suggested that it is necessary to improve the supervision of real earnings management activities, strengthen the level of information disclosure, and enhance the financial indicators to reveal real earnings management. This paper is helpful to provide a new perspective for the research of real earnings management and enrich the literature about real earnings management. It also helps to regulate the behaviors of earnings management in the listed companies in China and promote the improvement of relevant regulations.