Non-punitive Regulation And Earnings Management

The 19th NCCPC emphasized "transform government functions and innovate regulatory methods".Under the background of regulatory transformation,the trend of decentralization of supervision by the CSRC to the exchange is gradually emerging.Since the formal implementation of the reform called "the direct channel for information disclosure",the focus of exchange supervision has shifted to post-supervision.Inquiry supervision measures have been continuously valued and improved,and the number of Annual Report Inquiry Letter has increased year by year.This non-punitive regulatory measure has become a common means for China’s exchanges to supervise corporate information disclosure.On the one hand,the exchange inquiry letters are authoritative,time-sensitive,spillover effects,and may affect the company’s reputation.At the same time,the reply letter helps to increase information disclosure.These factors make inquiry supervision have the effect of restraining earnings management,especially the obvious accrual method.On the other hand,the motives of corporate earnings management are diverse,and coupled with the limited tenure of the salary contract and the lower probability of real earnings management means being discovered or investigated.Based on the principles of cost and benefit,inquiry supervision may lead companies switch to implement more hidden real earnings management.In addition,due to the factors such as the relatively low level of supervision of the exchange,the low cost of violations,the doubtful enforcement and efficiency,and the higher benefits of earnings management,inquiry supervision may not be effective.Therefore,there is space to explore the effect of the exchange’s inquiry supervision on the corporate earnings management behavior under a variety of different factors.This paper chooses A-board companies from 2015 to 2019 to conduct research.Based on two dimensions of accrual earnings management and real earnings management,this paper discusses the impact of non-punitive regulation on earnings management behavior of listed companies from the perspective of annual report inquiry letter,and further analyzes the role of property rights and audit quality in regulating the relationship between the two.The empirical results show that:(1)Under the inquiry supervision of exchange,the ways of earnings management also changed to real from accrual;(2)The impact of exchange’s inquiry supervision on changing earnings managements ways is more significant in non-state-owned companies;(3)The quality of external audit and exchange inquiry supervision complement each other.The impact of exchange inquiry supervision on reducing accrual earnings management is more pronounced in companies with low audit quality;audit quality weakens the impact of exchange inquiry supervision increasing the level of real parts.The conclusion part is useful to China’s post-disclosure regulatory innovation,which provides some experience data for the formulation and implementation of relevant regulatory policies.Meanwhile,it can also help investors,creditors and other stakeholders better comprehend the company’s behavior and the quality of information disclosed.