Financial-related Securities Class Action And Earnings Management

Recently,in order to protect medium and small investors,many people suggest applying the securities class action lawsuit in our country.U.S.-listed Chinese companies under the securities class action lawsuit also trigger social parties to focus on the securities class action lawsuit.However,the domestic and foreign research of the influence of securities class action on the enterprise,doesn't class the cases of securities class actions into different types and rarely focuses on the earnings management.This paper selects cases of securities class action happened in the United States during year from 2005 to 2014 as samples,dividing them into two types according to whether they are caused by financial problems,in order to explore the influence of different types of securities class action on enterprise.Through empirical test,the research finds that compared with non-financial related securities class actions,financial-related securities class actions cause the companies to reduce the behavior of the accrued earnings management.To achieve profit targets,however,the enterprise will turn to real earnings management to achieve the enterprise short-term target.The real earnings management,in the long run,may ruin the enterprise.In addition,the study also finds,the company usually uses promotion and provides loose credit policy to improve the company's earnings,which will lead to the decrease of enterprise operating cash flow in the future.The conclusion shows that the financial-related securities class action lawsuit is a double-edged sword.It will reduce the accrued earnings management behavior of the enterprise.However,to achieve the profit target,the enterprise will improve short-term gains through real earnings management,which may damage long-term interest of the enterprise.