Profit Indicators Of Delisting Risk Warming And Non-recurring Profit And Loss Earnings Management

The warning system of delisting risk in Chinese securities market evolved from the special treatment mechanism introduced in 1998.The mechanism aims to warn investors about the risks of listed companies in operating performance and information disclosure.For the securities market,it can lead poor listed entities to exit the open market and improve the quality of the market.After years of development,great changes have taken place in securities market environment,market size,and investor participation.The drawbacks of the system have also gradually been exposed.The current delisting process of China includes several main stages,the risk warning phase,the phase of suspension of listing,and the phase of termination of listing.The risk warning phase refers to those listed companies with financial or other significant anomalies will be signed *ST/ST.During the risk warning period,the increase in transactions is subject to certain restrictions.Over the years,the regulatory agency has been working to improve the *ST mechanism and other delisting-related mechanisms.And the relevant criteria system has been refined to make use of the expected role of the mechanism.In light of the conditions for revoking risk warnings,the current regulations in China consist of financial indicator standards,legal compliance standards,and others.The financial indicators are divided into operating income scale standards,net asset standards and net profit standards.According to the empirical analysis of the securities market over the years,it can be seen that the financial indicators,especially the net profit index,have become a key factor.Therefore,the settlement of *ST-related financial indicators has become an important part of the *ST system.In 2012,new stock listing rules was issued.The profit index of *ST was revised that the index of “positive net profit after deduction” was cancelled.That means the listing entity can return to the main board as long as the net profit is returned in the next fiscal year.This indicator does not eliminate the impact of non-recurring gains and losses on performance,making it easier for entities to pick up the sign of *ST.Will the revision of the new profit indicator make a negative effect that lead to a large number of poor listed companies staying in the open securities market? This article attempts to obtain some useful experience and suggestions from the historical data of the securities market.The main part of the paper puts forward that after the revised of profit index,the long-term performance of the newly-listed companies has not been improved.This article makes statistical analysis on the sample companies' operating performance from multiple perspectives,such as Per-share indicators,profitability,quality of return,and summarize the results.Afterwards,in light of the common methods of non-recurring gains and losses and earnings management of *ST companies,such as government subsidies,debt restructuring,and sales of non-current assets,the thesis makes a more detailed explanation in terms of theoretical description and case analysis.Finally,the paper proposes several suggestions for the improvement of the *ST index system and how to promote the formation of an effective exit mechanism.Firstly,the correct definition of the nature of non-recurring gains and losse is necessary,which can improve the enforceability and operability of non-recurring net profit indicators.Secondly,improve the *ST index system by strengthening the emphasis on the main business indicators,weakening the importance of profit indicators.