Research On SEO Polices And Their Effects On The Earnings Management In Chinese Listed Companies

Since the seasoned equity offering(SEO) was adopted as a financing measure of Chinese companies in June 1998, it has been getting popular rapidly and become an important way of equity refinancing for Chinese listed companies. In order to regulate the capital market and protect the interests of investors, China Securities Regulatory Committee, our securities regulatory institution, has put forth a series of documents to limit the qualification of companies which would offer seasoned equities. However, many problems, such as whether these policies have positively protected the investors or have undesirable effects on the process of selecting the qualified listed companies, what are the outcomes of these effects, and what are the cause or mechanism behind these effects, have under hot debate and will be give a satisfactory explanation in this thesis.This thesis has used the game theoretical approach to analyze the interest conflicts between listed company and investor under SEO related policies environment and no SEO related policies respectively. The listed companies and investor constitute the two sides of players, and according to the information structure and the game timing we found it can be described in an incomplete dynamic game. And also the ROE can be used as a signal for information communication in our game. The requirement imposed by the government can alter the equilibrium path of the game. We found that related policies imposed on SEO foster the occurring chance of pooling equilibrium. That is to say, the SEO related policies have induced the listed companies to expose the fake information.Our empirical study is designed to test the conclusion of our theoretical study. This thesis adopt cross-section-modified Jones model and introduce the dummy variable which measure the different ranges of Return of equity (ROE) to test the impact of SEO related policy imposed by the government on the quality of information exposure quality. We found that listed companies have strong incentives to manage earnings in order to gain the right of SEO (Seasoned Equities Offering) and improve the share price in SEO, and also that earnings management of listed companies in China is induced by the government.Combined the theoretical study and empirical test, this thesis conclude that the limitation on the requirement of SEO have just superficial effect on the regulation of the...