Study On Earnings Management With Extraordinary Items

As an important branch of modern accounting theory, earnings management of listed companies received the attention of scholars home and abroad, and has obtained certain research results. It is also a thornier question in accounting practice area. It has become one kind of common phenomenon for listed companies to plaster the profit by the mean of earnings management, especially for those been specially treated. For speciality of extraordinary items, it has become an important way for listed companies' earnings management. Besides, the situation has been worse year by year. Deep research on the question of listed companies'earnings management with extraordinary items, on the one hand it is advantageous for the investor to make right investment decisions, through the knowledge of core competitiveness of enterprises and sustainable profitability from financial reports, comprehensive and objective assessment of its operations Performance under the consideration artificial adjustment factor influence. On the other hand, it can provide reference for empirical research based on the stock market operation of China in this field, and will promote the positive transformation of modern accounting theory and accounting practice. Besides it can provide constructive strategy for supervision organization to perfect the information disclosure system, for reduction of profit manipulation and regulation of the securities market as well.This paper aims to study on non-recurring listed companies'earnings management with extraordinary items, and put forward two hypotheses according to analysis above. It extends by the verification of the two hypotheses. This paper covers five major parts,namely introduction, literature review, empirical study design, empirical testing and study enlightenment and policy recommendations,. Chapter one briefly describes the background, significance, the framework of research mentality, and study methods of this paper. The chapter of Literature review lays the theoretical foundation of this paper. Firstly, it defines extraordinary items and earnings management according to the literature home and abroad, and elaborates the motivation of earnings management respectively from the perspective of Opportunity Theory, Efficient Market Theory, Contract Theory and Information Economics. Then analyses the reason why extraordinary items are widely used in earnings management according to the review of literature home and abroad. The third and fourth chapter is empirical study part, also the hard core of this paper.The third chapter proposes existence and preference hypotheses of earnings management by extraordinary items under the foundation of theoretical analysis.Secondly we have to collect the sample data for the need of empirical study. Then carry on the preliminary descriptive statistical analysis of the loss company samples and control samples in 2009. Simultaneously test the two hypotheses with the Frequency Distribution Method and the Multi-dimensional Linear Regression Method separately. The results shows that loss company will use earnings management by extraordinay items to increase the earnings in its reversing year, and has preference of special detail selection, followed by disposal of non-current assets, debt restructuring, replacement of non-monetary assets and government subsidies. Finally, this paper puts forward corresponding policy based on the enlightenment of study.The object of this paper is quite novel. It has synthesized many kinds of empirical study method. What moreover, the unique sample were selected under the background of implementation of the new accounting principle and economic crisis.At last it suggests a longer time window and more rigorous data process for further study for the limitation of various objective and subjective factors.