An Empirical Study On Marketization, Managerial Power And Earnings Management

In the Third Plenary Session of the 18 th Central Committee of the Communist Party of China, the government proposes to achieve marketization through streamlining government and delegating authorities, to make the market play a decisive role in the allocation of resources, that is government needs to reduce the allocation of resources which made by government directly and push forward the resources to be allocated in the way of market rules, prices and competitions to make the maximizing and optimization of efficiency. On the one hand, the revolution of marketization stimulates domestic demand to meet the supply, which help Chinese economic develops with high speed. On the other hand, China is a country with the policy of “one country, two system”and “four areas”. The features of China induce the imbalance in different areas. For example, the companies in eastern area enjoy higher marketization than the ones in middle areas and north eastern areas. In the same way, the marketization in the middle areas and north eastern areas is higher than western areas. The areas with imbalance marketization share the same capital and produce market, so the difference lead to irritable activities of management, such as finance policies are different in the areas. The power of management originates from shareholders and management control the power of financial decision-making and decision-making, which leads to earnings management. All of the factors have significant effect on the way of corporate's trade and investment and financing, then it influents earning management for the listed corporates. Besides, with the development, the listed companies share the diversified and complex intentions and methods. Due to the unique background of China's marketization revolution and imbalance marketization degree in areas, the essay researches the relationship of the degree of marketization, managerial power and earning management. First of all, the essay explains the documents focused on the choice of accrued earning management and real earning management, the research of marketization with earning management, and managerial power with earning management. Secondly, it will analyze the relationship of marketization, managerial power and earning management with principal-agent theory, managerial power theory and the induced institutional change theory. Then, with the data of 4525 listed companies of stock markets of Shanghai and Shenzhen from 2010-2014, the essay designs regression model to study the relationship among the degree of marketization, managerial power and earning management with revised Jones model to estimate the degree of earning management, and uses accrued earning management and real earning management to instead of earning management, then it will draw the conclusion, beside, according to the degree of marketization, the essay researches the relationship of managerial power and earning management, using check sample to do further research. Finally, based on the results of study, the essay will give the recommendations.According to the test, there are three conclusions: First of all, marketization shows significant negative correlation with accrued earning management and real earning management, accrued earning management shows significant positive correlation with real earning management. Secondly, managerial power shows significant positive correlation with earning management which includes accrued earning management and real earning management, accrued earning management shows significant positive correlation with real earning management. Thirdly, the difference of marketization influences the relationship of managerial power and earning management. In the region with high degree of marketization, managerial power has no correlation with accrued earning management, at the same time, in the region with low degree of marketization, managerial power shows significant positive correlation with accrued earning management. In the region with high degree of marketization, managerial power shows significant positive correlation with real earning management, at the same time, in the region with low degree of marketization, managerial power has no correlation with real earning management.The innovations are: Firstly, the essay studies the senior executive's activities of accrued earning management and real earning management. While, the current study always focus on one of former factors. The existing research shows that the trend of earnings management is the transition from accrued earnings management to real earnings management, or the common use of accrual earnings management and real earnings management, so the two way of earnings management are mutually influenced, they are both each other's control variables. Secondly, based on the unique background of China marketization and imbalance marketization in the areas, the essay combines the internal and external management to study the marketization and managerial power how to influence the earning management. While, the present study only research how does the marketization or managerial power influence earning management. The essay studies both of them.