A Study On The Correlation Between Earnings Management And Audit Quality In Chinese Listed Companies

Earnings management widely exists in Chinese listed companies, which has seriously hindered the. standardized development of Chinese stock market. For the behavior of earnings management of listed companies, external users hope that the audit of financial statements from CPA can restrain its effect. Under this background, the thesis studies the correlation between earnings management and audit quality to make sure whether audit from CPA is effective, which is of great theoretical and practical significance to further improve our independent audit quality and better earnings management in Chinese listed companies.Both normative and empirical research methods were applied in this study. The thesis firstly analyzed the correlation between earnings management and audit quality theoretically based on the concept of earnings management. Secondly, with the former research concerning measurement of earnings management and evaluation of different models, Jones Model of cross-sectional data and comprehensive regression was chosen as the measurement model of earnings management in this research. Thirdly, during the empirical study, added some control variables, this thesis firstly built Logistic model with audit opinion, auditor size and auditor region which are three substitute variables of audit quality as dependent variables and earnings management as independent variable. Then with certain selection criteria, this thesis selected 1431 listed companies'cross-sectional data which were listed in Shanghai and Guangzhou stock market in 2009, and finally the correlation between earnings management and audit quality of Chinese listed company was deeply analyzed with independent-samples T-test and multivariable Logistic regression analysis methods.The result shows that:1) CPA can disclose earnings management of listed company in a certain degree and reflect it in the audit opinion, i.e., earnings management is positively related to nonstandard audit opinion; 2) Degree of earnings management in listed companies that were audited by "Big Four" is remarkably lower than others, i.e., earnings management is negatively related to auditor size; 3) Whether the listed companies and the accounting firms were in the same administrative division holds no effect on the degree of earnings management in listed companies, i.e., the relevance between earnings management and auditor region is extremely weak.Based on theoretic and empirical studies, this thesis finally proposed four suggestions on restraining earnings management in Chinese listed companies., including, improving administrative structure of listed companies, improving the CPA'professionalism, strengthening social supervision and enlarging auditor size, in the hope of playing a part in the improvement of our audit quality and the restraint of listed companies'earnings management.