Empirical Study On Earning Management Of Private Placement Listed Companies

1、BackgroundPrivate placement has existed in our capital market for about ten years. On May6th2006, SEC issued "Issuance of securities of listed companies ".It was the first time that SEC regulated the conditions and the limited time for sale for private placement.And since then, private placement flourishes all the time in our capital market.Limited companies prefer to issuing private placement, because SEC hasn’t set any profitable threshold for it. Private placement has two advantages:Firstly, it doesn’t need any profitable threshold for issuance. Any limited companies can issue private placement only if the issue is compliance with the relevant policies and regulations and the information provided is legitimate. It’s so attractive for those who have great future but performing bad recently that can’t reach the threshold set for public equity offerings. Secondly, it can help to resolve the problem of asymmetric of information in the issuance process. Since its issue objective is large shareholders and institutional investors, and institutional investors are capable of analyzing financial report, asymmetric information problem in the issuance process can be resolved to a large part. Due to the case that shareholder holding a large share is prevalence in our capital market, the largest shareholder want to earn excess returns, and has the incentive to seize the minority shareholders’ interest. For them, the original aim is earnings management.Though there are many studies on earnings management within and cross abroad, the study on earnings management is based on real earnings management through real activities manipulation is rare in our theoretical realm. Roychowdhury was the first person that created models to measure the level of real earnings manipulation. Since then, some scholars in home started to imitate Roychowdhury’s methods. The conclusions about incentives such as capital market incentive(such as IPO and public equity offerings)and tax-avoidance incentive have been verified existing in our limited companies. But the evidence on the real earnings management existing in limited companies is still an open question.According to the introduction above, we can figure out that the study on real management in private placement is almost blank. Thus, we induct some research on the existing of earnings management, the incentives of inducting real earnings management and the economic consequences by these two methods in the process of private placement.2、Article StructureThe whole text is divided into seven parts as followings:The first chapter is introduction. It introduces the background of text research and the meaning of it.The second chapter is the summary of research achievements in both Western country and China.The third chapter is the theoretical analysis of earnings management, including contract theory, transaction cost theory, asymmetric information theory and property rights theory. In this part, we also introduce the theory about private placement and the policy about the private placement.The forth chapter develops the hypothesis and models to measure the level of accrual-based and real earnings management.The fifth chapter is empirical analyzing. This part introduces how we collect samples and data, and makes some descriptive analysis about the most important variables. In the following part, we make empirical analysis about the model we have introduced in the chapter four, and at last,we get the result.The sixth chapter is further analysis of our result and some suggestion we’ve made about real earnings management and private placement. At last, we make some conclusion about future research.3、Essential viewpoints and conclusions:Firstly, our listed companies always make earnings management when they issue private placement, and they use accrual-based and real earning management at the same time.Secondly, real earnings management occurs because it can escape the monitor of regulators or make up the earning target that the accrual-based earnings management can’t achieve.Thirdly, according to our empirical analyze, we find accrual-based earnings management have an negative impact on operating performance in short time, whereas real earnings management have an negative impact on operating performance for a long time.4、ContributionsReal earnings management is a new way to realize earnings management. In this text, we detect if the listed companies use both accrual-based and real earnings management at the same time and how it influence the listed company’s performance in future. It is a beneficial attempting to understand the situation of our policy.Then we provide some suggestions to our regulators on how to prevent such situation happening.