Study On The Relationship Between Diversification And Earnings Management In Chinese Listed Company

Recent years, diversification and earnings management have been hot issue. However, diversification and earnings management have been studied in two separated fields for a long time. This paper will combine them and study the impact of diversification on the earnings management in order to make helpful suggestions and offer valuable reference for the domestic enterprises.Firstly, the paper explains the definition of diversification, sums up the classifications of diversification and the motives, and gives the measures of diversification. It also interprets the definition of earnings management, the motives, the measure method and the model of earnings management. Secondly, according to information asymmetry and offsetting accruals earnings, it puts forward two opposing hypothesis. Thirdly, according to the research samples of listed company of A share market from 2005 to 2008, the paper studies the impact of diversification on the earnings management, and the impact of change of diversification on the earnings management, using Descriptive Statistic, Correlation Analysis, Variance Analysis, Ordinary Least Squares regression and Logistic regression.The research result implies that many listed corporations have implemented the diversification strategy, and most of them manage the number of industry from two to four. Another 40% of them carry out low-grade diversification and 1/4 of them implement middle-grade diversification. Many listed companies have the behavior of earnings management. The regression results indicate that there is a negative correction between diversification and earnings management, and between diversification and negative earnings management, and there is not necessarily correction between diversification and positive earnings management. In more research, we find that there is no change of 3/4 of those companies which operate in many industries, that there is a positive correction between the change's range of diversification and earnings management, and there is a negative correction between the change of diversification and earnings management. And the research result has helpful significance to the management of similar companies.