Research On Earnings Management Of Management Buy-outs

Management Buyouts (MBO), as an emerging way to stimulate the management, plays an important role in the development of the governance structure of the list companies in China. But there are frequent expressions of concern in the fairness of the MBO price and the financing source of the MBO. Usually net assets per share is taken as the yardstick of the MBO price and in China there do not exist a lot of financing sources, which induces the management's strong motivation of earnings management in the MBO.Common mode of earnings management in the MBO is that decreasing earnings in order to buy the shares by low price before the MBO and increasing earnings on purpose to get more cash dividends and release their financing pressure. Otherwise the accounting accruals and underline items are two ways of earnings management. Therefore, based on a sample of 54 list companies which implement MBO in the period from Jan, 1999-Dec, 2006, this thesis have made researches on the following two fields: (1) examining whether managers make use of the accounting accruals in the year before the signing of the agreement of the transfer;(2)examining whether managers accomplish earnings management through underline items in the MBO.The conclusion indicates :(1) there exists strong evidence to prove that the company which implements MBO performs systematic earnings management through the accounting accruals ;(2)there exist evidence to prove that the management increase earnings after the MBO.Therefore, we suggest the government to: (1) set up laws for MBO ;(2) reinforce the effect and responsibility of government; (3) and set up a mechanism for speculating in the MBO.