The Influence Of Chinese Industrial Listed Companies’ Earnings Management Motivation On The Types Of Impairment Of Assets

Earnings management has been the focus of accounting research for a long time, one of the reason is listed company exists many signs of earnings management. In order to evade capital market regulations, to rise share price and to complete the incentive goals, companies and shareholders and managers all have earnings management motivations. As earning index is very important in security market regulations, salary incentive and market reaction, earning adjustment always becomes the target of earnings management.Profit is revised higher or lower when earnings management is existed; combining with the enterprise’s operating performance, listed company’s earnings management motivation can be divided into three categories. The kind of profit smooth, which companies have excellent operation performance, the profit quota exceeding objectives level, such companies want to undertake profit. The kind of transforming from losses into earning, which companies are losses in fact, but for various purposes need reported as earning, such companies want to rise incoming in current. The kind of exaggerating the losses, which companies deficit seriously, they would take "big bath" to increase deficit.When asset values have been reduced, accurate recognizing impairment can reflect the enterprise’s real financial condition. But as the recognizing of asset impairment will extract profit and the returning of asset impairment would increase profit, listed company can either get profits storage or take "big bath" through asset impairment recognize, or can return asset impairment to turn from loss to earning. This characteristic of asset impairment brings great convenience for earnings management.This paper divides all industry companies into three samples:the kind of profit smooth, the kind of transforming from losses into earning and the kind of exaggerating the losses. Through the descriptive statistics of the three companies and through independent sample Z inspective method, this paper verifies whether there is difference in the three samples when they use asset impairment to take earnings management between the accounting standard was not issued and after the standard’s implementation. This paper is divided into six parts:Part 1:the introduction. This section describes the research background, the purpose and meaning of this paper, research idea, methods of analysis and expecting contributions.Part 2:review. This section summarizes research conclusion about asset impairment and earnings management at home and abroad. These study results are concentrated in two aspects, one is whether listed company has earning management motivation, most of the literature’s conclusion are affirmative; the other is whether listed company take earnings management by asset impairment, the results of most literatures are affirmative also.Part 3:theory analysis and regulations. This part illustrates the theory of asset impairment and earnings management, lists the development course of Chinese asset impairment regulation. This part explains theory about asset impairment at first, including its definition, the standard of prudence and accounting objective etc. And then expounds the theory about earnings management, including its definition, motivation, market efficiency theory, principal-agent theory and information asymmetry theory, etc. Finally, this part expounds the standard’s development process.Part 4:empirical study design. This part of the research proposes the article’s hypotheses:under the new standard, because of company’s different motives of earnings management, the asset impairment category and way would differ; and the implementation of the new standard is benefit to inhibit using asset impairment for earnings management. Through the sample’s picking, making use of Jones model, the paper divides all companies into three samples:the kind of profit smooth, the kind of transforming from losses into earning and the kind of exaggerating the losses. Combined with the asset impairment’s types and mode, this paper defines nine research variables. Applying with the descriptive statistics method, this part reflects the existence of earnings management’s motivation and the differences of three samples using asset impairment to earnings management.Part 5:the empirical results. Appling with independent sample Z inspective method, this part test whether nine variables has varied significantly between the accounting standard was not issued and after the standard’s implementation, and then analysis the test results briefly. The results of the study show that the kind of profit smooth company, the kind of transforming from losses into earning company are extent of using short-term assets after implementing the new standard; the kind of transforming from losses into earning company and the kind of exaggerating the losses company reducing long-term asset impairment after the implementation of the standard; The new standard can’t significantly reduces three companies using asset for earnings management.Part 6:conclusions and policy recommendations and limitations. This section firstly analyzed empirical study results, we may draw a conclusion that, after the new standard was carried out, companies still can use the asset impairment for earnings management; Second, standard has enormous influence on using asset impairment for earnings management; Third, the new standard can’t inhibit using asset impairment for earnings management significantly; Four, companies with different motives of earnings management change identically in using asset impairment for earnings management after the standard’s implementation. In view of the above conclusions, this part suggests corresponding policy recommendations. This part pointed out the article’s limitations and future research direction at last.This paper’s main conclusions and contributions:(1) Three types of company are differ in employing of asset impairment, the new standard’s effects are also different because of motives of earnings management are different. The kind of exaggerating the losses company is dependent on asset impairment and long-term assets impairment very much; the other two classes companies make use of assets impairment lower and applying long-term assets impairment faintly. Therefore, the new standard in prohibition of long-term asset impairment’s return, significantly make the kind of exaggerating the losses company using less long-term asset impairment for earnings management. In addition, the implementation of the new standard also led to the kind of profit smooth company and the kind of transforming from losses into earning company using more short-term asset impairment for earnings management, and the latter reduce long-term assets impairment. (2) The empirical results show that new standard require long-term assets’ impairment not been turn back, which although can inhibition using long-term asset impairment for earnings management more or less, but another result is listed companies using more short-term asset impairment for earnings management. The new standard’s overall effect of restraining using asset impairment for earnings management is not obvious. Therefore, our standard is still not perfect, listed companies have chance to use asset impairment for earnings management still.