Auditor Industry Expertise,Institutional Environment And Corporate Earnings Management

Earnings management,as an effective means of controlling external financial report,is used by many managers to achieve the ultimate goal of maximizing personal benefits.For managers,appropriate earnings management can overcome the incompleteness of contracts and protect the interests of enterprise managers better;In addition,earnings management can help to reduce the impact of the volatility of capital markets on investors’ decision-making behavior by smoothing the volatility of corporate earnings,thus protecting the interests of enterprises.However,for the users of financial statements,earnings management will cause the following adverse effects:Firstly,the reliability of financial statement information is reduced,and the usefulness of external accounting information users and decision makers is lost;Secondly,due to the driving of earnings management mainly from the interests of managers,thus their interests is different from that with investors,creditors and others,therefore,the earnings management will harm their interests.The way managers manipulate earnings usually consists of three categories:accrual-based earnings management,real-activities earnings management,and classification shifting,and different ways of earnings management will cause different economic consequences,thus enterprises will select the corresponding earnings management according to their own needs.The auditor can not only identify the financial reports,but also prevent the occurrence of earnings management,thus whether auditors can effectively supervise the company will directly influence the interest of investors and creditors.Auditor industry expertise has been regarded as the key element to improve audit quality by many scholars.It has become a hot research topic in management field in recent years.Although there have been literature discusses the relationship between auditor industry specialization and earnings management,but only from the accrual earnings management,or accruals and real earnings management two aspects,there has not been a literature from the perspective of classification shifting of corporate earnings management behavior.In view of this,this paper uses theoretical analysis and empirical test,so as to research the influence of auditor industry expertise on the three types of earnings management mode choice,and introduce the moderating variables of institutional environment for further examine of the relationship of auditor industry specialization and three types of earnings management,and check whether the relationship of which is enhanced or weakened.In the part of theoretical analysis,the relevant concepts are defined,and the relevant theories are analyzed.In the part of empirical research,using the data of A-share listed companies from 2008 to 2016 research object,this paper collects relevant data through the CSMAR database,and use STATA to analyze the unbalanced panel data to study the relationship between auditor industry expertise,institutional environment and earnings management.The results show that the accounting firms with industry expertise can promote the audited units choose the real-activities earnings management,inhibiting the selection of accrual-based earnings management and classification shifting;at the same time,as a moderator variable,institutional environment can weaken the positive relationship between auditor industry expertise and real-activities earnings management,but institutional environment cannot moderate significantly the relationship between auditor industry specialization and the other two methods of earnings management.According to the research conclusions,some suggestions are put forward,such as developing the auditor expertise,building a good institutional environment and so on.