Study On The Influence Of Delisting System Reform On Earnings Management Behavior Of ST Companies

After more than 30 years of development,China’s capital market has initially established a more systematic and perfect institutional framework of capital market,but the problem of delisting is still prominent.China’s relevant regulatory authorities have been committed to solving this problem for many years.By 2019,they have completed four major delisting system reforms.However,the delisting rate has not been significantly improved,and the reform effect is relatively limited,which still has a certain gap with the institutional design of foreign mature capital markets.In March2020,the implementation of the new Securities Law kicked off the fifth delisting system reform in China.At the end of 2020,the Shanghai and Shenzhen Stock exchanges simultaneously issued the 2020 version of the delisting system known as "the strictest new regulations in the history",marking the successful completion of the fifth delisting system reform in China.This paper adopts the case study method and selects Wuchangyu as the case enterprise of this paper.Firstly,the process of delisting risk warning has been carried out for three times in more than 20 years since its listing.Secondly,it deeply analyzes and interprets the earnings management behavior during the withdrawal of delisting risk warning period;Finally,based on the previous major delisting system reforms,this paper explores the actual impact of institutional reforms on ST companies’ earnings management behavior,so as to test the effect of different delisting systems in the actual implementation.This case study shows that the motivation of wuchangyu’s three earnings management has not changed significantly,mainly for brand protection motivation and Financing Motivation,while the objectives and means of earnings management have changed significantly.Specifically,during the first withdrawal of the delisting risk warning period(2006-2008),the specific factors affecting the implementation of earnings management in wuchangyu are mainly its poor ability to resist risks,suffering major asset losses and falling deeply into major litigation and arbitration.The means of earnings management are mainly related party transactions and government subsidies,and the goal of earnings management is to adjust the current net profit;During the second withdrawal of the delisting risk warning period(2015-2017),the specific factors affecting the implementation of earnings management in wuchangyu were mainly the significant uncertainty of its sustainability,poor profitability,repeated failure to plan asset restructuring,repeated inquiries from regulators and warning penalties.The main means of earnings management were the disposal of non current assets.The goal of earnings management is still to adjust the current net profit to achieve turnaround;During the third withdrawal of the delisting risk warning period(2019-2021),the specific factors affecting the implementation of earnings management in wuchangyu were mainly the expropriation of the company’s assets,the change of controlling shareholders and the failure to significantly improve its ability to continue as a going concern.The main means of earnings management were to increase current operating income through related party transactions.However,due to the significant changes in the new delisting regulatory standards,its earnings management objectives were adjusted from net profit indicators to operating income indicators,but in view of the stringent standards,it failed to successfully withdraw the delisting risk warning,thus being forced to delist.The research shows that the three institutional changes have a significant impact on the objectives and means of earnings management in wuchangyu,but the impact of institutional changes on the motivation of earnings management is not obvious.Through in-depth analysis and interpretation of the case company,the main problems reflected in the case are that there are still regulatory loopholes in delisting standards,lack of supervision in real earnings management,and non-recurring profit and loss items become the hardest hit area of the company’s earnings management.At the same time,this paper puts forward corresponding improvement suggestions in view of the problems found above,and provides empirical evidence for improving China’s delisting system and strengthening regulatory punishment in the future.