Intra-industry Effects Of Financial Scandals On Stock Price And Earnings Management

Since the 21 st century,there have been numerous scandals involving financial frauds by listed companies.The harm caused by the financial fraud of listed companies is significant and extensive.It will not only damage the healthy production and operation of listed companies,affect their sustainable development will hinder the effective operation of the capital market,but also seriously infringe on the economic interests of investors and trigger investors' Confidence crisis,even more will interfere with the rational allocation of resources,affect the government's macro-control,social and economic order is difficult to function properly.There are many reasons for the company's financial fraud,which also includes influencing factors from the industry system and operating environment.Therefore,investors may change the earnings expectations and value estimates of other companies in the same industry due to the disclosure of a company's scandal.The formation and exposure of financial scandals have exposed many problems in the governance of listed companies.Many existing documents have shown that changes in the company's stock price may affect the earnings management behavior of listed companies' management.On the one hand,management may make rational decisions based on stock price information and reduce earnings management in the next accounting period in order to change investors' expectations on the quality of accounting information and corporate governance.On the other hand,stock price volatility may induce management's irrational decision-making,to avoid profit growth caused market doubts and investors panic.Reviewing existing literature,research on financial scandals,company stock prices,and earnings management related relationships revolved around the same company,rarely involving the spillover effects of financial scandals on peer companies.The dissertation chose to use the financial intelligence fraud event as an entry point to discuss whether the company's stock price will change accordingly and the direction of change along with the exposure of the financial scandal.Further,discuss the economic consequences of financial scandal exposures and stock price fluctuations on companies in the same industry,and analyze whether the management of interbank companies will change their business decisions and implement earnings management.This paper uses a combination of theoretical discourse and case studies to explore the impact of financial scandal spillovers on the share price and earnings management of interbank companies.And this paper selected two listed companies,Eastmoney and Tonghuashun,as research sample companies.After sorting out the timeline for the financial fraud of Dazhihui,we chose investigation notice day(May 4,2015)and the administrative penalty decision day(July 20,2016)as event days.When investigating the spillover effect of financial scandals on the share price of the intercompany company,this paper uses the event analysis method to explore the impact of financial scandal spillovers on earnings management of intercompany companies.This paper uses the DeAngelo model and the modified Jones model to test jointly.The study finds that both event days have created an industry spillover effect,triggering an overall decline in the stock price of industry,and the spillover effect has a stronger effect on the share price of the intercompany company in the short term.The DeAngelo model and the modified Jones model have examined the accrued earnings management behavior brought about by the spillover effect and obtained the mutual verification result.That is,in 2015,the two sample companies were all manipulating the surplus,and in 2016,Only Tonghuashun has obvious earnings management behavior.Therefore,this article believes that the investigation notice has a more significant impact on the decision-making of the management of industry.The administrative penalty decision can only affect the earnings of some companies.However,there are some deficiencies in the study of this article.First,this article takes the case study as the main method and explores the influence of financial fraud by Dazhihui on other companies.Due to the special nature of the industry and the limitations of the sample company's data,the findings of this study have limitations.In the future,through the further study of related topics in different industries,the universality of conclusions can be improved.Second,in the context of investigating the spillover effects of financial scandals,this paper has a stronger impact on short-term spillovers.Based on this,it only explores the common way of short-term earnings management—accrued earnings management,but ignores the consideration of real earnings management.