Derivatives,Internal Control Quality And Earnings Management

Since the financial crisis of 2007,people have continuously explored and examined its roots,and gradually recognized derivatives as a risk management tool.China’s derivatives market has developed rapidly and has now begun to take shape.However,when Chinese companies use derivatives,they have real problems such as lack of understanding of derivatives,insufficient understanding of futures market,lack of talents,speculation and fewer derivatives.The core values of derivatives are not fully utilized.Even due to the complexity and high leverage of derivatives,it has a huge impact on corporate reporting data,and often companies have suffered huge losses using derivatives.In recent years,China’s securities market has developed at a high speed.Stakeholders make decisions based on the information disclosed by listed companies,and they pay close attention to the quality of information.Among them,whether the disclosed information contains earnings management has also received great attention.Therefore,Domestic and foreign scholars’ research involves multiple aspects and dimensions.So,will derivative applications affect the degree of corporate earnings management? Researches in the literature have shown that the application of derivatives can cause changes in the volatility of cash flow,cause changes in the fundamental information of enterprises,and affect the degree of earnings management of enterprises.The company’s operation and management must be legal and compliant,and the presentation and disclosure of financial reports and related information must be true and complete.These are inseparable from the quality of internal control.Internal control is an institutional arrangement.Effective internal control will better constrain the self-interested behavior of managers,bring good constraints and supervision effects,and thus inhibit executives from incorrectly using and excessively using derivatives,which can effectively curb the company’s earnings management.So,when the quality of internal control of the company is different,is there a significant difference between the application of corporate derivatives and earnings management? In addition,China’s system has special characteristics.Non-state-owned enterprises have greater incentives to manage earnings than state-owned enterprises.Then,when the nature of property rights is different,is there a difference between the application of corporate derivatives and earnings management? If companies are under the influence of internal control quality and property rights,is there a difference in the relationship between the application of derivatives and earnings management?This paper takes the data of all A-shares of Shanghai and Shenzhen stocks in 2007-2016 as the sample source for regression.The main findings are as follows:(1)When other conditions are the same,there is a significant negative correlation between the application of derivatives and the degree of earnings management;(2)Compared with enterprises with low internal control quality,enterprises with high internal control quality make the negative correlation between the application of derivatives and the degree of earnings management more significant;(3)Compared with state-owned enterprises,non-state-owned enterprises make the negative correlation between the application of derivatives and the degree of earnings management more significant.This paper mainly has the following innovations:(1)Studying the impact of the quality of internal control on the relationship between derivatives and earnings management;(2)Taking the nature of property rights as a grouping variable,the impact of property rights on the relationship between derivatives and earnings management is studied;(3)Innovatively combine the quality of internal control with the nature of property rights to observe the impact of the two on the relationship between derivatives and earnings management;(4)Distinguish the impact of derivatives types on earnings management.