A Research On Earnings Management In M&A Of Chinese Listed Companies

Till now,merger and acquisition(M&A)activities have been developed for less than two decades in China;nevertheless,as a crucial strategic decision-making and resource optimization method,it has become increasingly prominent for the enterprise development.The relevant research on earnings management is one of the most essential subjects in the field of accounting research.After the equity division reform in China,the capital market became even more active,and there is an upward tendency in the listed companies' M&A activities,which led to a series of accounting information distortion and the continuous emergence of earnings management during M&A.Undoubtedly,earnings management will not only block the enterprise's self-development,but also may exert severe damage to the M&A market operation order;therefore,as regards the earnings management in the M&A market,making a deep study of earnings management in the entire process of M&A(including the early stages,current period,and the later stages of M&A)has vital theoretical and practical significance.Based on that,this paper takes a host of A-share listed companies that have experienced M&A in the Shanghai and Shenzhen stock exchanges as research samples,and try to answer the following questions:First,whether there is an obvious earnings management in the process of M&A? Second,within the field of earnings management in M&A,are there any critical influences that have not been explored yet or researched thoroughly up to now;how will they affect earnings management in M&A? During the M&A,are there any issues related to timing and method selection of earnings management? Third,after M&A,are there significant disparities between different ways of effects of earnings management? Whether accrual earnings management after M&A has a mediating effect between accrual earnings management effects during the current period of M&A and M&A's performance?The paper takes listed companies which adopted mergers and acquisitions between2009 and 2014 as research samples and then investigates their earnings management during the M&A process.Following the basic way of “Questions? Theoretical Analysis? Empirical Analysis? Conclusions and Policy Recommendations”,the paper utilizes the principal-agent theory,incomplete contracting theory,asymmetric information theory,and relevant theories of M&A motivation.Combining with thecharacteristics of M&A,the paper first explains the existence of earnings management in M&A from the interest conflict among stakeholders,and analyzes the game of M&A company shareholders' supervision and managers' earnings management and its results according to the game theory.Secondly,the paper analyzes the types of mergers,financing method and the impact of M&A companies' political connection on earnings management.Then,the paper explains the earnings management timing and earnings management choices.Finally,the paper tests the effect of accrual earnings management and real earnings management after M&A,thereby revealing the mediating effect of earnings management through the analysis of the impact path of accruals earnings management in M&A.In the empirical analysis,the paper uses methods such as descriptive statistics,correlation analysis,T-test to conduct a preliminary inspection on data,and conducts an empirical analysis of research hypotheses through multiple linear regression model.Simultaneously,this paper also makes the robustness test of the empirical analysis conclusion by group regression and transformation methods of substitution variables,etc.The article is divided into eight chapters:Chapter 1,introduction.This chapter mainly introduces the study background,purpose and meanings,research ideas,method,framework and technical route,content and the innovation of the study,etc.Chapter 2,literature review.This chapter consults Chinese and foreign documents on M&A,earnings management,and earnings management in M&A,focuses on those with similar themes,generalizes and summarizes the consensus and controversial results,thus laying a starting point of this paper.Chapter 3,related concepts and basic theory.This chapter first defines the concepts such as M&A,earning management,and conduct theoretical analysis on earnings management's issues related to this paper's theme respectively,thereby providing the theoretical foundation for the following study.Chapter 4,the analysis of the earnings management existence of Chinese listed companies in M&A.Firstly,this chapter analyzes the present characteristics of the M&A of Chinese listed companies during 2009-2014,then proposes research hypothesis on the existence of earnings management from the perspective of the conflict of interest amongdifferent stakeholders,and uses empirical research method to identify earnings management.Ultimately,it analyzes the present situation of the earnings management in M&A,and reveals the objective existence of earnings management in M&A and distribution characteristics of earnings management in M&A.Chapter 5,empirical analysis of the factors influencing earnings management in M&A.This chapter proposes research hypotheses according to three influencing factors;in the empirical analysis,statistical analysis technique such as descriptive statistics and correlation test are used,and the type of M&A,M&A financing and the influence of the M&A companies' political connection on earnings management are tested respectively through multiple linear regression model,and the robustness tests are made in turn.Chapter 6,an empirical analysis of earnings management timing and earnings management method selection in M&A.This chapter proposes research hypotheses to examine the earning management timing in each quarter and earnings management method selection in M&A.In the empirical analysis,this chapter uses statistics analysis and econometric methods,analyzes research hypotheses empirically through multiple linear regression model,and makes the robustness examination in turn.Chapter 7,an empirical analysis of the earnings management effect after M&A.This chapter first proposes the research hypothesis on the accrual earnings management and real earnings management effect,and the mediation effect of accrual earnings management after M&A.In the empirical analysis,apart from the usage of normal statistical analysis,mediating effect test is also conducted to test the mediating effect of the accrual earnings management of post-M&A in earnings management of current period of M&A and M&A's performance.Ultimately,robustness examinations are employed respectively.Chapter 8,conclusions and policy recommendations.This chapter generalizes and summarizes the whole article,comes to the conclusion of the study,and points out the insufficiency of the research of this article and the further research direction.At last,on the basis of this article's research conclusion,relevant political suggestions are put forth for company management,investors,the government and regulators.The main conclusions of this paper are as follows:(1)There are obvious earnings management in the process of M&A of Chinese listed companies.(2)As to the influencesof earnings management in M&A,the types of M&A,M&A financing and M&A companies' political connection have a significant impact on the earnings management in M&A;In the case of the types of M&A,the non-relevant M&A may induce the listed companies to increase their earnings upward;In terms of M&A financing,equity financing before M&A has a significantly positive impact on the level of earnings management,while private placement that took place before M&A may make the M&A companies' executives reduce the earnings management;In terms of political connection,political connection has a markedly positive effect on the level of earnings management after M&A a period later.(3)As to the timing and choice of earnings management in M&A,this paper identifies that M&A managers choose to manage earnings in the third or fourth quarters,and M&A companies may carry out accrual and real earnings management throughout the M&A process simultaneously.(4)In terms of the effect of earnings management after M&A,this paper finds out that accrual earnings management after M&A has significantly positive impact on M&A's short term performance;however,real earnings management after M&A exerts significantly negative influence on M&A's short term and long term performance.In addition,the accrual earnings management after M&A plays a mediating role in the impact mechanism of accrual earnings management effects during the current period of M&A on M&A's performance.The innovation of this paper is as follows:(1)From the research perspective,rather than merely regarding general listed companies as research samples like most of the previous studies,this paper focuses its research perspectives on M&A,and concentrates on earnings management in the whole process of M&A;(2)As to the research methods,previous studies about the existence of earnings management in M&A mainly adopt the empirical research method to identify the earnings management in M&A;in this paper,however,the game theory analysis method is used in this article to analyze the game results of the shareholders' supervision and the earnings management under the condition of compensation contract.When examining the mediating effect of earnings management after M&A between the accrual earnings management effects during the current period of M&A and M&A's performance,the paper also utilizes the method of mediating effect test;(3)As to the research content,the existing research on influence factors of earnings management in M&A mainly pursues research in the method of payment for M&A,the nature of equity and other factors;this paper,nonetheless,expands the influence factors of earnings management in M&A,focusing on the types of M&A,M&A financing and the impact of M&A companies' political association on earnings management in M&A.In terms of earnings management timing in M&A,this paper abandons the previous behavior which merely considers the degree,the direction and the way of earnings management,but innovatively makes an in-depth analysis of how the managers of the M&A companies choose the earnings management in each quarter according to the quarterly financial reports of listed companies;additionally,the existing studies mainly focus on the degree and direction of accrual earnings management before M&A,and there is a lack of direct analysis of earnings management effects of post-merger literature.This paper studies the effect differences of accrual and real earnings management of post-M&A,and attempts to test the mediating effect of accrual earnings management of post-M&A through the Mediation Effect Test Model.