The Effect Of Earnings Management On Corporate Investment Behavior

Earnings management has been widely studied both domestic and aboard in recent30years, and a large number of research results have been published.However, previous studies rarely explore whether earnings management will affect business decisions. The domestic scholars have do enough research of the factors which influent corporate investment behavior, such as industry, liabilities,management Incentive,the internal cash flows,shareholder structure and so on,but few studies have shown the relationship between financial reporting quality and corporate investment, especially about their influence of earnings management to corporate investment.This paper chooses China’s A-share public listed companies as the research object, establishes earning management model and investment efficiency model. Then use the selected data from2007-2011calculate residuals as dependent and independent variables and do regression analysis. Especially, it investigates how earnings management influences investment scale, investment efficiency and investment-cash flow sensitivity of Chinese listed company. Finally,this paper obtained the following research results:Firstly, this paper studied the relationship between earnings management and capital expenditure. After controlling ROA, internal cash flows, growth opportunities, company size, industry, and year, the study found the positive relationship between earnings management and capital expenditure which indicates the earnings information is a key factor the companies have to consider when they make investment decisions.Secondly, this paper divided samples into two group:the overinvestment group and underinvestment group, according to regression residential is whether greater than zero or not. Then, do multiple linear regression analysis of these two sets of data respectively and found ultimately found that there shows a significant positive correlation of earnings management and over-investment and under-investment, which means earnings management will decrease investment efficiency of a company. This paper further tested the effects of positive earning management and negative earnings management on investment efficiency. The results showed that positive earnings management has a positive effect on over-investment and a negative effect on under-investment, negative earnings management has a positive effect on under-investment.Thirdly, this paper focused on the impact of earnings management on the relevance between the internal cashflows and the corporate investment,and found higher the earnings management was, the relevance between the internal cashflows and the corporate investment decreases.The research of this paper not only improve the economic consequences of earnings management, but also conducive to enterprise to make rational investment decisions, and it is conducive to the protection the interests of shareholders, creditors, equity investors, which shows important theoretical and practical significance.