Overinvestment And Earning Management

Beginning with classical political economy,scholars represented by Marx started a great deal of discussion of the capitalist profit-making methods.They found that the basic reason of capital accumulation is to expand reproduction.After the primitive accumulation of capital,in order for the capital to further multiply,whether it is to squeeze more surplus value through increasing labor force and working tools or to obtain excess surplus value through upgrading technology,it is necessary to make the "profit" obtained from the previous capital turnover into the production,in order to get more income and benefits.Capital necessarily has a profit-driven factor,that is,it will only invest in projects that are considered profitable.However,many studies related to psychology and economics prove that people are generally overconfident.Moreover,management overconfidence is particularly serious.Then this issue is most likely to lead to "rational economic man" implement " irrational economic behavior",thus invest in unprofitable project.We call this kind of inefficient investment behavior as overinvestment.Then let's go further,what kind of managers are more likely to implement overinvestment ? Based on this question,this paper examines the impact of executives who have an investment-banks working background,to explore if they will have an influence on the degree of overinvestment.Due to the information asymmetry caused by the business model of "separation of ownership from two rights" in modern enterprises,only the managers can understand the actual business conditions of enterprises completely and clearly,and the owners can only evaluate whether the managers' management is competent through the annual reports.The better the annual report is,the more reason owners will have to believe that their company is in a great condition,and also the more effective the manager's operation is.So the less distort on the annual report,the information asymmetry between the principal and agent will be at a lower degree as well.Also,the report will reflect even more real information about the enterprise,it will reduce the possibility of managers' implementing irrational economic behavior.So the relativity between earning management and overinvestment will be a problem worth studying.We think it is necessary to explore the inter-relationship and the relativities between managers' behavior and the company's operating conditions,even more,the interests of the owners too.This article takes overinvestment,earnings management and executive's investment banks working background as the object of study.According to Managerial Overconfidence Theory,Free Cash Flow Theory,Asymmetric information theory,this article takes data between 2012-2016 from Shanghai stock market and Shenzhen stock market as sample.Based on the theories,we establish the hypotheses logically step by step,and build 3 regression models: the executive's investment banks working background and overinvestment;overinvestment and Accrual-Based earnings management;over-investment and the Real earning management Finally,by means of descriptive statistical analysis and regression analysis,we can draw conclusions and offer recommendations.The first part introduces the background and significance of this article,as well as the structure of the article,research methods and innovations.The second part reviews the domestic and abroad research achievements of managers' overconfidence,overinvestment and earnings management.Secondly,after reading a large number of related domestic and abroad literature,the author systematically sorts and classifies the literature,and reviews the literature.The third part elaborates the theories,definitions and measurement methods of overinvestment and earnings management,and then makes a logical reasoning based on the existing theories to make a theory of the background of overinvestment investment and the relationship between overinvestment and the two methods of earnings management Analysis,and put forward the corresponding research hypothesis.In the fourth part,the chapter first deals with the selected samples,obtains the variables corresponding to various indicators,selects suitable control variables under the condition of needing control,and then constructs the regression model according to the hypothesis respectively,finally carries on the descriptive statistical analysis to the empirical results and regression analysis.The fifth part,according to the empirical study results in the fourth part,we achieve the final conclusion,put forward the corresponding recommendations,explain the shortcomings of this paper,and look forward to the future to see where can be perfected.