Empirical Study On How Related Transactions Are Used As A Way Of Earnings Management In Chinese Listed Firms

With the development of the stock market in our country, the phenomena of listed companies making use of the connected transactions to manage earnings are becoming serious gradually. The phenomena and incentives of listed companies making use of the connected transactions to manage earnings are studied in this paper. First, based on the review of correlated literature, the author clarifies the definitions of connected transactions and earnings management. Moreover, the types, measures and trend of the connected transactions are analyzed from the situation of our listed companies.Second, 330 listed companies with the standard auditing opinions by CPA are chosen as the research sample from Shanghai and Shenzhen stock market, which disclose the important connected transactions in financial statements in 2004. Afterwards, the characters of phenomenon of earnings management in China's listed company are studied by descriptive statistics and nonparametric tests. Then this paper draws conclusions as follows: There are the phenomena of earnings management in the research sample, in which the companies of ROE of 0% right was obvious to evade deficit.Moreover, the incentive of debt contract that is widely used in west countries hardly exists in earnings management in China's listed company, and the insufficiency of the evidence of the incentive of allotting shares is pointed out. The certainty of the research hypothesis about the incentive to evade income tax is supported. Additionally, the strong incentive to evade consumption tax is extraordinary found in the empirical study. Finally, the conclusion summarizes the researching achievements of this paper and the research direction in the future.