The Empirical Research Of Relationship Between Diversified Operations And Earnings Management

In recent years, diversified operations and earnings management have become increasingly the hot topic in academic circles. Scholars have conducted a series of researches on the two respective aspects from different angles; however, the literature, directly focusing on the relationship between the two is rare. Therefore, the present thesis, based on the agency theory, links the two aspects together. It starts from the study of the influence of diversified operations upon earnings management as well as an analysis of the specific methods adopted by diversified companies which put earnings management into practice, all to offer beneficial suggestions and decision-making bases for the supervision of diversified operations and earnings management in China.After sorting out the relevant literature and theories, the thesis first defines diversification and earnings management, and summarizes the incentives and economic costs of diversified operations. Also introduced are the motivations of earnings management, its detailed operation methods, and the research status on the relationship between diversified operations and earnings management. Furthermore, the thesis proposes the hypothesis built on the agency theory and information asymmetry theory. In the final step, A-share listed companies in China from 2008 to 2012 are selected as the source of data. After adequate selection of the research sample, the empirical part looks into the influence of diversified operations upon earnings management through descriptive statistics, correlation analysis and pluralistic regression, and further analyzes the specific methods employed by diversified companies in implementing earnings management.There are two aspects of innovations in this study. One is the research content. Through classification and summarization of the relevant literature, it is found that although there are large amounts of existing literature on the two independent areas, diversified operations and earnings management, the ones on the earnings management from diversified perspectives are comparatively less. Thus the thesis extends the research area by relating the two. Another innovation is the theoretical framework. The thesis emphasizes on analyzing the internal motivations of diversified companies from agency theory. As a starting point, it researches the relationship between diversified strategies and earnings management. Combined with the characteristics of high information asymmetry embedded in the diversified environment, the thesis makes a deeper analysis of the specific methods of earnings management. Hence, a relatively complete framework is formed.It is indicated from the empirical results that approximately 46% of the listed companies in China adopt diversified operations; also, positive earnings management behaviors prevail among listed companies and the extent of positive earnings management is greater than that of the negative. After careful investigation, we conclude that there is a positive correlation between diversified operations and earnings management; the companies employing diversified strategies are inclined to manipulating profits by accrued earnings management. The research results of the thesis offer significant references for those diversified companies in their related management, like diversified operations and earnings management.