The Research On Earnings Management Around Private Placement Of Equity

Using private placement of equity to raise money is favored by the listedcompany from the start because of their advantages of convenience and simple tradingconditions. Even before inclusion in Securities Act, there had been companiesexploiting it as a vital financing means. In2005, China’s Securities Law was formallypromulgated and legalized the means. There was a sharp rise in the number ofcompanies using the means, which soon replaced allotment and public issue of shares,and become a favorite financing means of the listed company. This means also hasadvantages in saving public budget because of the simple approval procedure. If welldeveloped, it is conducive to the capital market to use its regulation capability, andoptimize the allocation of resources. However, due to the immatureness of thedevelopment of China’s capital market, the imperfection of market mechanisms, andthe unabiding legalization of the financing means, there are many vulnerabilities andregulatory gap in the market.The natural thirst with capitals introduces strong demandfor the means. The problems of the means caused by various factors drew scholars’significant attention. They’ve focused on the topic from different perspectives, in thehope of providing correct directions on its rationalization.From the perspective of earnings management, this article studies privateplacement, through normative and empirical approaches to analyze the behavior inlisted companies in the private placement. This article reflects their earningsmanagement in the process by inspecting samples in a more extensive time span withmore diverse means. This paper focuses on samples’ earnings management before andafter two years. Meanwhile, the article expands earnings management indicators,studying both traditional accruals manipulation and real activities manipulation, for afuller understanding of this behavior. This article also looks at its impact on thesamples’ performance afterwards, and thus analyses the main factors in their chooseof real activities manipulation, and hope to provide theoretical and empirical evidenceto authorities to strengthen the supervision of the means, and to companies tooptimize capital structure and to better promote the role of private placement.