The Impact Of Bank Credit On Earnings Quality

With the continuous development and improvement of Chinese capital market, more and more scholars have focused on studying the earnings quality of listed companies. Investors, creditors and stakeholders concern about how to analyze and identify the earnings quality of companies. Compared to the enormous scale of listed company’s bank financing, their credit financing management has not earned relevant attention both on theory and practice. The list companies also lack of the protection mechanism of creditor’s interests.This paper used econometric models to analyze the influence of bank credit to the company’s earnings quality. The cross-section modified Jones model was used and the financial data of Chinese listed companies from2005to2009was selected as sample. Through this research we found that bank credit could restrain companies to manipulate their earnings and improve their earnings quality. Bank as creditor can use its information advantage to supervise and manage company, restrain company’s behavior of manipulating earnings and protect bank’s interests as creditor and investor. In the mean time, we found that bank has not played its supervising role as creditor for long-term loans due to fund investment and government intervention reason. It has no significant influence on earnings quality of company.This paper analyzed that bank credit which has influence on earnings quality of list companies and hopefully this research could provide some useful information to the relevant policy makers. Through the reformation of company’s external management mechanism, bank can effectively play its supervising role as creditor, gradually establish stakeholder management pattern based on bank creditor and enhance the protection to creditors and investors.