Source of financing and earnings management：Evidence from Chinese listed companies

• Main Authors: Wei-tzu Li, 李尉慈
• Other Authors: Jung-Hua Hung
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/88865879474316630439

碩士 === 國立中央大學 === 企業管理研究所 === 99 === Considering the differences of corporate governance environment between China and other countries and its soft budget constraint problems, this study investigates the relationship between sources of financing and earnings management behavior, using China’s listed corporations from 1997 to 2008 as sample observations. We use Panel Least Squares regression to examine our hypotheses and the results are as follows: First, before the banking reform, companies, which had high debt financing, had significantly less discretionary accruals and non-operating income, suggesting that managers have weaker incentives to manipulate earnings under the condition of soft budget constraint. However, after banking reform, only the use of discretionary accruals significantly increases, the use of non-operating income significantly decreases. These results indicate that banking reform can mitigate the incentives of earnings management by the use of non-operating income when listed companies increase debt financing. On the other hand, the increase in the use of discretionary accruals suggests that soft budget constraint problems have been alleviated after banking reform. Second, our empirical evidence shows that earnings management is positively related to rights issues during 1997-2000, suggesting that in order to exceed the threshold of rights issues, managers tend to manipulate earnings. In 2001, China Securities Regulatory Commission revised its rights issues regulations. We find that the use of discretionary accruals to manage earnings significantly increases. Nevertheless, there is no evidence that the use of non-operating income decreases after these adjustments. These results indicate that regulations about rights issues based on accounting numbers indeed lead to earnings management behavior. Our research has implications for emerging markets when making policies and for investors who assess the accounting quality of China’s listed firms.