A Research Of Pre-IPO Earnings Management Behaviors And Economic Consequences

In the stock market of China,there is a long period of decline in the share price and sometimes even below the issue price.In general,these phenomena are closely related to the Earnings Management behavior of company before IPO."Law of Corporation""Securities Law of the People’s Republic of China" and "IPO and Listing Management Approach" have tighter policy rules and conditions to listed companies.Generally speaking,the companies that can achieve the requirements of IPO should have a better foundation of financial performance.In order to achieve the IPO conditions and enjoy the benefits that IPO brings,companies will normally take means of Earnings Management to increase revenue within Accounting Standard;reduce costs to increase company’s surplus;realize IPO through beautifying Financial Statements.These behaviors not only lead to fake financial information of companies but also restrict company’s own development,affect the scientific and reasonable allocation of social resources and the healthy development of capital market.Therefore,with the increasing of the IPO companies,it is of great significance to study the Earnings Management behavior of company before IPO,how to realize it,and what it will cause.The thesis adopts the method of case study which takes Neway Value(603699.SH)for an example.In this paper,the first part is about the theoretical basis which introduces the concept,classification of Earning Management,Means of Earnings Management and Economics Consequences.Also it includes some fundamental theory related to this case and analysis of the motivation as well as a brief introduction to the calculating model of Earnings Management.The second part is to introduce the background of Neway Value and analyze its state of operation and the financial situation.In the third part it calculates the degree of Neway Value’s Earnings Management before IPO.The fourth part and the fifth part will separately further analyze Neway Value’s Earnings Management means and its economic consequences,and the final part of the article will draw conclusions to this case study as well as give some policy recommendations.The earnings management calculating model in the past mainly adopted linear Jones model and seldom calculated real activity degree of earnings management.This paper will take the nonlinear Jones model to calculate the degree of Earnings Management.Based on the model calculation and case study analysis,we will draw the following conclusions:First,the Earnings Management behavior exists before IPO.It is one of the most important reasons why the finical situation of Neway Value suddenly turn hostile.Second,Neway Value took Earnings Management measures to realize IPO,but it also caused the fall of the stock price and business performance.