The Impact Of Stock Liquidity On Earnings Management

Earnings management is the core issue that reflects the level of corporate governance,and is a key factor in the study of corporate external financial information disclosure and internal optimization governance structure.Some scholars based on the external perspective of enterprises point out that corporate customers,creditors and other factors will constrains earnings management(Zhang and Chen,2015;Fang and Zhang,2016;Zhang and Cai,2016);At the same time,some scholars have explored the impact of corporate governance,such as corporate governance structure,agency costs and executive incentives on earnings management(Jensen and Meckling,1976;Gao et al.,2008;Song and Wang,2015).Although these two types of scholars provide different research ideas and come up with convincing empirical results on earnings management constrains,the impact of market constraints based on stock liquidity on earnings management has not been involved,and more about the impact of earnings management on stock liquidity.Therefore,this paper explores the impact of stock liquidity on earnings management from the perspective of market microstructure.This paper takes 991 listed companies as research objects and constructs 10575 samples for empirical research.Firstly,this article uses Amihud index to measure stock liquidity,and performs univariate and multivariate regression analysis corresponding to the degree of earnings management and the degree of real earnings management.In addition,considering the potential endogeneity between stock liquidity and earnings management,this paper uses three methods:replacement metrics,quasi-natural experiments and instrumental variables.In addition,considering the potential endogeneity between stock liquidity and earnings management,this paper uses three methods:replacement metrics,quasi-natural experiments and instrumental variables.At the same time,in order to clarify the net effect of stock liquidity on earnings management,this paper constructs Treat group and Control group with different degrees of policy influence according to the size of the company' s liquidity change one year before and after the share-split reform,and then use the mean value of the company characteristics in the first three years of the split-share reform to match the propensity scores of the two groups samples to eliminate the impact of the split-share reform on the corporate governance structure.One this basis,the matched samples is estimated by the generalized DID method.Finally,we further describe the environmental characteristics and implementation channels on which stock liquidity affects the company's earnings management.The empirical results show that,firstly,the increase in stock liquidity will inhibit the company's earnings management,and the inhibition effect of the accrual earnings management is more obvious than the real earnings management.Secondly,stock liquidity is more effective in constraining earnings management in a transparent information environment.When the market environment is fully transparent,the transmission of relevant information will become effective due to the increase in stock liquidity.In the market environment with asymmetric information,the increase of stock liquidity may be realized through investment or market manipulation.At this time,information transmission does not mean to be effective.Thirdly,stock liquidity has a more significant effect on earnings management in the case of serious corporate agency conflicts.At this time,the effect of stock liquidity on the company's agency problem is more obvious,and the constraint effect on earnings management behavior is also stronger.This paper adds to the literature on corporate governance optimization based on market microstructure theory,which is no longer limited to the impact of external financial information disclosure and internal corporate governance structure on earnings management.In addition,there are few studies on the relationship between stock liquidity and earnings management at home and abroad,more about the impact of earnings management on stock liquidity and the indirect impact of stock liquidity.This paper systematically demonstrates the direct impact of stock liquidity on earnings management,and further explores the environmental dependence characteristics and realization channels of the relationship between stock liquidity and earnings management.Exploring the realization channel of stock liquidity affects the earnings management behavior of the company's management,which is conducive to enriching the cross-research literature on the relevant market microstructure and corporate financial behavior,and further validates the importance of giving full play to the market resource allocation function.At the same time,this paper introduces the share-split reform as the research background,on the basis of examining the effect of stock liquidity on earnings management before and after the reform,it can also provide a new research perspective for examining the policy effects of share reform.