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Earnings management of listed companies in China

Author: LiQin¡¡PengYunHe From: www.yourpaper.net Posted: 2009-06-19 09:43:05 Read:
Abstract: earnings management has become the most active research one of the hot issues in the field of corporate finance, and extensive attention by the scholars. Earnings management of listed companies in China motivation will be discussed, due to institutional and historical factors, their motivation is different from the motives of the West. Finally, existence of reason, and on this basis to explore the motivation for the prevention and treatment of earnings management behavior proposed some policy recommendations.
Keywords: listed companies; earnings management; motivation; existence of reasons; policy recommendations

1 China's listed companies earnings management motivation

1.1 New Issue motivation
Stock issuance and listing means that listed companies be able to raise a lot of money, so many businesses issue stock and listed the motive is very strong. Yet it is not any business can be issued and listed on the stock. The stock issuance is divided into the initial public offering and subsequent releases (allotment, issuance). "Company Law" and other laws and regulations in the case of an initial public offering, according to the initial public issue of securities laws and regulations, enterprises must be three consecutive years of profitability and results of operations of the more prominent. This restrictive conditions many businesses can not be reached, so in order to be able to issue and listing. It through a variety of means to manage accounting earnings, to ensure that the company operates three earnings.

1.2 Allotment motivation
ROE failed to meet the allotment requirements for listed companies close the allotment pass line may take the surplus management tools to reach allotment requirements, fight for the rights issue. China Securities Regulatory Commission has strict requirements allotment status.

The 1.3 enterprise mergers and acquisitions motive
The process of mergers and acquisitions, earnings management is mainly concentrated in two areas of the City acquisition and management under the convertible M &. Management under the acquisition process, the value of the company is based on the method of ordinary stock market value, or to take the surplus capital, common stock market value reflects the company's historical earnings information, but can not reflect the internal management information surplus capitalized to assess the value of the company based on the company's history report surplus. Management before the acquisition of the next City underestimating the surplus of incentives, so as to achieve the purpose of reducing the purchase price. Convertible in the M & A process, the higher the value of the stock of the acquirer enterprise, purchase the target company to issue fewer shares, the acquirer tries to improve reporting surplus earnings management to increase its stock price before the merger, lower acquisition cost, the extent of earnings management is measurable increasing function of M & economic benefits of scale through mergers and acquisitions transactions.

1.4 avoid "delisted" and "special treatment" motivation
The securities regulatory shows two consecutive years of losses of listed companies will be special treatment for three consecutive years of losses will be suspended from listing, still can not turn around in a certain period of time, no longer meet the listing requirements, the company will be subject to the termination of the listing of the punishment . Once put ST hat, financing is difficult, the increase in the cost of capital. Thus, in order to avoid the "special treatment" and "suspend the listing of" punishment, loss losses or to prevent losing money as an important goal. At this time in order to achieve the above objectives, the listed company earnings management behavior arises.

1.5 borrower motivation
In recent years, as China's financial system reform. Banks and other financial institutions to provide loans to enterprises is no longer as before, without considering the safety of the company's solvency and loan. Banks and other financial institutions to conduct risk management, to provide loans to businesses, the need to provide accounting statements to determine the credit. Enterprises generally face a shortage of funds, some of the poor financial condition of the enterprise had to manage earnings, beautify the accounting statements, in order to cope with the financial institutions.

1.6 Management remuneration and incentive motivation
Company managers and even employees the ability to obtain rewards and incentives, and how much for. Often linked to the company's operating results. The assessment of the results of operations of the Company can not be separated from the profit plan completion rate of return on investment, output value, sales income, asset turnover, sales profit and other financial indicators, such as compensation and bonuses under the power and pressure, the company, often through earnings management to change the performance indicators.

The 1.7 tax savings motivation
The income tax is a more obvious motive to promote enterprise management authorities to manage earnings. Levied on corporate income tax, generally based on accounting profits-based tax adjustments, and then according to the tax law. Enterprises in order to save the tax burden, reduce the cash outflow, often try to reduce reported net income. Despite the tax department in the calculation of corporate taxable income, tax accounting requirements, thereby reducing earnings management space, but there are still some available for corporate accounting policies to their own choice. In addition, China's tax system is not quite perfect, quite a lot of preferential tax policies, which also contributed to the business managers to avoid tax and earnings management.

The 2 earnings management of listed companies in China exist Cause Analysis

2.1 defects of the governance structure of listed companies in China
The corporate governance structure is divided into two parts: the external governance structure and internal governance structure. External governance structure is formed through market competition between principal and agent supervision and restraint mechanisms; internal governance structure is carried out by the enterprise system of internal organization and decision-making and implementation mechanisms. The principal performance evaluation and reward and punishment for agents. Effective corporate governance structure should solve two problems: First, how to configure and to exercise control over; how to monitor and evaluate managers and its effective incentive. Former managers to create earnings management conditions; latter in compression earnings management space at the same time, to some extent, also inspired the earnings management manager motivation. External governance structure for the capital market is not perfect, manager market has not yet formed; internal governance structure defects mainly for internal control options are highly concentrated, the very low level of minority shareholders to participate in the company's decision-making, the lack of a comprehensive remuneration incentive mechanism. 2.2 regulatory policy limitations
China's securities market, a lot of earnings management, the behavior of financial fraud. The fundamental motivation is to meet the regulatory requirements for listing and financing qualifications. From that point, the regulatory regime is one of the predisposing factors listed company earnings management. China's stock market, share placement and the delisting of the provisions are the provisions of the relevant asset yields, forcing some companies to manage earnings in order to achieve regulatory policies. Authorities to monitor the financial indicators over a single, and create the conditions for listed companies to manage earnings.

2.3 Accounting Standards system is imperfect
Accounting standards inevitably will leave room, that deal with the same accounting matters, there will be more minutes alternative accounting treatment, so that the statutory accounting policy on accounting matters of recognition, measurement and accounting reports compiled aspects of newspaper and other enterprises to provide a larger range of accounting policy choice.

The 2.4 audit opinions distortion
In China, the accounting firm attestation services as the annual financial statements of listed companies, the quality of its audit not only with their own qualities, the firm's system about outside. With the market environment.

3 Suggestions

3.1 perfecting the listing of the company's internal system
(1) improve the corporate governance structure. First, to strengthen the functions of independent directors. Directors of the management checks and balances; Participate in the operation of the board of directors, independent directors can be found in the company's danger signals, warning the company's non-compliance or misconduct. Therefore, the establishment of an independent director system is regarded as an effective way of improved corporate governance structure. Second, to strengthen the functions of the Supervisory Committee. To strengthen the independence of the Board of Supervisors; to confirm separate supervisor of the terms of reference; establish a system of external supervisors. Again, the establishment of the Audit Committee, in order to improve the monitoring by independence and the ability to judge the information and make an independent judgment.
(2) to improve the public disclosure of information. First, the establishment of a the information disclosure multi-level regulatory regime. Create a multi-tiered regulatory system, jointly by the Securities and Futures Commission, stock exchanges, industry associations, intermediaries, public and media constitute a functional complement to gradually improve the regulatory system; Second, to strengthen information disclosure and legal system; final. Increase the penalties for violations.
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