Accrual Earnings Management,Excessive Debt And Cash Flow Manipulation

On August 16,2019,the China Securities Regulatory Commission issued the "Notice of Administrative Penalties and Market Bans" to Kangmei Pharmaceutical,and another major financial fraud case was exposed to the public eye s.Significantly different from the major financial fraud cases that occurred in the past,from 2016 to 2018,Kangmei Pharmaceutical not only managed to account for accounts receivable,prepaid accounts,construction in progress,investment real estate,fixed assets,etc.,accumulatively increased the operating income 27.515 billion yuan,and in order to cover up high debts,deceive debt financing,and accumulate 88.67 billion yuan in currency funds by forging sales rebates.The major financial fraud case of kangmei pharmaceutical showed the complex characteristics of the coordination between accrual earnings management and cash flow manipulation,which once again aroused people's high attention to the relationship between them.Although the existing normative literature has found that the financial manipulation of enterprises has developed from a single accrual earnings management to a complex stage,and accrual earnings management and cash flow manipulation show a degree of integration in debt pressure and other incentives.However,there is a lack of further theoretical analysis and empirical test on the relationship between accrual earnings management and cash flow manipulation,as well as the impact of debt pressure on the relationship between them,which needs further scientific research.Based on this,this article selects China's A-share listed companies from 2007 to 2018 as a research sample.By establishing a simultaneous equation model,the three-phase least squares method(3SLS)is used to analyze the correlation between accrual earnings management and cash flow manipulation.It further examines the moderating effect of excessive debt on the relationship between them.It is found that there is a complementary relationship between accrual earnings management and cash flow manipulation.And excessive debt will further deepen the complementary relationship between them.Further research found that internal control and executive shareholding,which are the main means of corporate governance,have a significant inhibitory effect on the above relationship.The research in this article deepens the understanding of the internal relationship and occurrence rules of cash flow manipulation and accrual earnings management of listed companies,and reveals the inhibiting effect of corporate governance on the above relationship.And it is enlightenment significance for the effective understanding of investors,effective supervision of government departments and effective corporate governance:(1)Investors,creditors and other stakeholders should pay attention to the authenticity of cash flow when judging the quality of earnings by using the cash content ratio;(2)In order to curb the alienation of earnings management behavior,t he corporate governance layer should improve internal control and equity incentive measures for senior executives,strengthen the governance of real earnings management such as cash flow manipulation,and improve and optimize the governance mechanism such as internal control;(3)Supervisory departments and external audits must strengthen the supervision and auditing of true earnings management,including cash flow manipulation.Special attention should be paid to the accrual earnings management and cash flow manipulation of excessive debt companies.Moreover,it is necessary to evaluate and deal with regulatory and audit risks from the perspective of the internal linkage law of accrual earnings management,excessive debt and cash flow manipulation.