Research On Earnings Management Behavior Of ST Enterprises Under The New Delisting Rules

Since the formal establishment of SSE and SZSE,the efficiency of delisting in China’s capital market is relatively low compared to developed capital markets such as Europe and the United States.One of the reasons is that many ST companies on the brink of delisting will adopt earnings management measures to beautify their performance and avoid delisting.In order to curb the earnings management methods of ST enterprises and accelerate the liquidation of substandard enterprises,SSE snd SZSE promulgated a new delisting system at the end of 2020,improving delisting indicators and procedures.The first batch of companies to "wear hats" after the issuance of the new delisting regulations mainly hit financial delisting indicators due to their negative net profit before and after deduction and their operating income related to their main business not reaching 100 million yuan.Among them,enterprises that "take off their hats" because their operating income and net profit both meet the standards generally find new growth points in their main businesses,driving profits to improve.However,there are still some enterprises that only meet the net profit or operating income indicator.One of the important reasons for such enterprises’ "cap removal" is that these ST companies have targeted earnings management in order to "protect the shell".In this context,this article takes HZ Co.,Ltd as a case to study in detail the earnings management behavior of ST companies under the new delisting regulations.This article first reviews relevant domestic and foreign literature,and conducts a preliminary statistical analysis of the basic situation of A-share ST enterprises after the promulgation of the new regulations,to explore the main reasons why ST enterprises "wear hats" and "remove hats.".After that,a detailed case study of HZ Co.,Ltd was conducted.This article identified its earnings management behavior from both specific means and empirical models.After that,it analyzed the motivations and opportunities for HZ Co.,Ltd to conduct earnings management,as well as subsequent market and financial performance,and finally reached a conclusion.The research findings of this article are as follows: Firstly,after the delisting of the new regulations,ST companies are more inclined to income management,and the use of non recurring gains and losses for earnings management has been effectively reduced.Secondly,if ST company’s main business does not improve,even if earnings management measures are used to protect the shell,it is inevitable to fall into a shell vortex.Finally,if the quality of ST companies that "take off their hats" does not substantially improve,even if their market and financial performance improves in the short term,their long-term performance will still expose the fact of poor performance.Based on the above conclusions,this article puts forward relevant suggestions,which have certain reference value and significance for regulators,investors,and other stakeholders in the capital market.