Empirical Analysis On The Relationship Between Product Market Competition And Earning Management

Earnings management has always been a hot topic for scholars.The study of earnings management focuses on the internal governance of the company.It mainly focuses on the impact of internal governance factors such as board governance,management remuneration,and equity structure on earnings management.External governance is less concerned.In order to improve the quality of corporate earnings,government agencies continue to draw on domestic and foreign advanced theoretical and practical experience to start with internal corporate governance,but the effect is not significant.Therefore,a small number of scholars have shifted their focus to the study of the relationship between external governance and earnings management.As one of the most basic external governance mechanisms,product market competition has a direct impact on the disclosure of listed company information,which has attracted the attention of some scholars.Based on the theory of principal-agent theory,information asymmetry theory,information hypothesis,and liquidation threat hypothesis,this paper analyzes the impact of product market competition on earnings management by using the information mechanism of product market competition and external governance mechanism,collects listed companies in China's manufacturing industry.For the sample of 6637 data from 2011-2015,two dimensions of product market power and industry competition level,and PCM and MKT are used to measure the market power of products,1/N and HHI are two ways to measure the level of industry competition.Their influence on the strength of earnings management.Based on the empirical research results,the following conclusions are drawn:(1)At the company level,the stronger market power of the company's products in its industry is,that is,companies with stronger market pricing capabilities and higher market share have earnings management.The motivation is even smaller.The stronger the market power of products,the less vulnerable to changes in the market,the pricing power enables companies to pass on costs to consumers,and thus achieve a stable surplus.In addition,there are many companies with strong market power.Other advantages make the company more persistent.Therefore,the company's own competitive advantage will give it a good ability to adjust its surplus,and it will not need to use earnings manipulation to adjust its surplus.(2)At the industry level,the lower the industry concentration of the company,the more intense the level of competition in the company,the stronger the company's motivation for earnings management.First,in a competitive industry,companies are less likely to pass on adverse costs to consumers.Second,because of the proprietary costs of information disclosure,companies in order to prevent potential competitors from obtaining useful information will also reduce the quality of earnings.Finally,the managers of competitive industries bear more short-term performance pressure,which may cause their opportunism and myopia management behavior.The motivation for earnings management is even stronger.(3)After distinguishing the nature of property rights,at the corporate level,due to its unique nature,state-owned enterprises are mostly appointed by the state and have high political costs,and state-owned enterprises lack a corresponding internal control mechanism,often a dictatorial proprietary decision mechanism.In order to achieve good performance indicators and maintain the company's current economic position,management is more motivated to implement earnings management.At the industry level,compared with stateowned enterprises,industry competition has a more significant stimulating effect on earnings management of non-state-owned companies' management.The strong backing of stateowned enterprises and the attention given by top management to official careers have weakened management's accrued earnings management.From the analysis of the results of empirical research,this paper believes that market forces for effective competition should be improved,government monopoly intervention in the market should be reduced,legal construction and supervision should be strengthened,the company's supervision and management mechanism should be perfected,the role of intermediaries should be fully emphasized,and the efficiency of market resource allocation should be improved.To create a fair competitive environment,so that the capital market sustained and healthy development.