The Study Of Endogeneity Between The Quality Of Information Disclosure And Earnings Management Of Listed Corporations

Earnings management in corporate has been a hot topic concerned by theorists and practitioners for a long time. It also has become one of the important research areas of the empirical accounting research which has been raised later in the1980s. After the manipulation of earnings management, financial statements and other information available to investors given by the enterprises may not truly reflect the operating results and financial position of the enterprises, and this will lead the investors making wrong investment decisions, and even cause loss to them. It has been known to all that information asymmetry between investors and the management is a necessary condition for earnings management. In fact, improving information disclosure quality can reduce the information asymmetry between investor and the management to some extent, thus reducing earnings management and the investors’wrong decisions.Nowadays, China’s securities market is a newly developing capital market with non-standard information disclosure of listed companies and lack of information transparency. However, just as we know, the quality of information disclosure of listed companies directly relates to the effectiveness of securities market, investors protection and other important issues. Under this circumstances, it has become the only way to the sustainable development of China’s securities market which is aiming at how to make a reasonable guide for the quality of information disclosure of listed companies, increase the effective supply of securities market information, improve the quality of information disclosure, and decline the space of earnings management through a series of market mechanism and means. Research on the relationship between the quality of information disclosure of listed companies and earnings management, for revealing the intrinsic correlation between the two, and improving the quality of corporate information disclosure, and optimizing the corporate governance, and improving corporate performance, which is of important theoretical value and practical significance.In China, the study on listed companies is much more important and practical than on non-listed companies since the operation and management of listed companies are more standardized. This paper chooses companies of manufacturing foe research in order to eliminate the influence to earnings management and the analysis result from industry classification, as well as to make earnings management of variable companies more comparable. This paper selects Shenzhen listed companies as research objects, using ratings published by Shenzhen Stock Exchange to describe the quality of information disclosure of listed companies, and discretionary accrual from the modified Jones model to measure earnings management. We research the effect of the relationship between the quality of information disclosure and earnings management on efficiency of securities market. Usually, we use least squares estimation (OLS) to estimate the relationship between two variables. If the regression coefficient is negative and statistically significant, we call the two variables are negative correlation, otherwise positive correlation. If the regression coefficient isn’t statistically significant, there’s no correlation between them. But we could use this method only when the dependent variable has no influence on the independent variable. Although the quality of information disclosure influences the earnings management, it’s also influenced by the quality of information disclosure. If the interaction is been strengthened, traditional method will underestimate the relationship between them. Contrarily, if the interaction is been weakened, we will overestimate the relationship between them. The existing researches about the relationship between earnings management and the quality of information disclosure of listed companies doesn’t take the endogenous problem into consideration and only regards on the positive effect between information disclosure quality and earnings management which leads to disregard on the feedback effect of earnings management and the quality of information disclosure. This paper takes the listed companies as example and in order to gain more dependable relationship, doing in-depth exploration in the endogenous degree of earnings management and the quality of information disclosure. So first we don’t take the endogeneity into account and use OLS to estimate the relationship between earnings management and the quality of information disclosure. Then we use instrumental variable to establish a new equation to eliminate the influence of endogeneity. We will compare the two results to find a correct relationship of earnings management and the quality of information disclosure. We use Two-Stage Least Squares (2SLS) to estimate the data, and we find that earnings management of sample companies has negative relation with their quality of information disclosure. This discovery is of important theoretical value and practical significance.The main contributions of this paper are as follows:to consider the interactive relationship of the quality of information disclosure and earnings management, set up the simultaneous equation, and research on the interaction between the two on the basis of endogenous variables.This paper is divided into five parts, and each part is as follows:Part one:Introduction. This part introduces the research background, the research significance, the research ideas, the paper structure and the research methods of the study, so do the expected contributions.Part two:Literature Review. This part reviews the international and domestic researches of the relationship of the quality of information disclosure and the corporate governance, and the relationship of the quality of information disclosure and the earnings management, and then makes some comments on them.Part three:Theoretical Analysis. This part firstly analyzes the original theories of the quality of information disclosure and earnings management, and secondly analysis the interactive relationship between the two.Part four:Empirical Analysis. This part defines the samples to study, chooses the quality of information disclosure and earnings management index, brings up study hypothesis, establishes empirical model, and draws the empirical theory, analysis the empirical result.Part five:Conclusions, limitations, recommendations and future directions. This part describes the main results:the relationship of the quality of information disclosure and earnings management is mutual and negative. And the author mentions some limitations of the study and expects some research directions for the quality of information disclosure and earnings management.