Media Coverage,Internal Control And Earnings Management

Over recent years, financial scandals both at home and abroad emerge in endlessly. In order to realize their own interests, many listed companies start to intensify their efforts in earnings management. However, this will result in serious consequence to capital market since it affects normal resource allocation and disrupts economic order. Therefore, earnings management has been the focus of scholars and all stakeholders. Media coverage, as an external supervision power, rise up rapidly as the dominant force for dissemination of public opinions, as it can increase the transparency of the operation information of listed companies and serves the role of guiding public opinion, which to some extent, restrains the inappropriate acts of those companies. Along with constant perfection of internal control in China, the relation between internal control and earnings management has become the hot topic for debates within the academic circles. However, scholars have not achieved any consensus on this. Meanwhile, the effect the media coverage has on earnings management also varies under environments with different internal control.This paper takes the A-share listed companies in 2014 as its objects of study and uses total number of media coverage, DIB-internal control indexes for listed companies and other financial data to study the relation among media coverage, internal control and earnings management. After performing regressive calculation on accrued earnings management across industries using modified Jones model, SPSS and Pearson are first used respectively for descriptive statistics and correlation analysis, then it studies the correlation effects between media reports and surplus management, and between internal controls and surplus management respectively, as well as whether or not there is any different effect on earnings management by media coverage under environments with high or low internal control. Finally, this paper has run further test in which it divides the sample companies into groups based on their property, and studies the impact the media reports and internal controls have on earnings management of companies with different equity nature.The results of the study show that firstly, the attention shown by media to listed companies can restrain the inappropriate acts conducted by management and constrain the earnings management by listed companies; secondly, internal control can serve the role of constraining the earnings management by listed companies; thirdly, the inhibiting effect brought to earnings management is more significant in companies with low internal controls, fourthly, the inhibiting effect brought to surplus management of state-owned listed companies by media coverage is more significant than that for non-state-owned listed companies; fifthly, the inhibiting effect brought to earnings management of state-owned listed companies by internal controls is less significant than that for non-state-owned listed companies. In the end, based on the research results and theoretical analysis, this paper has put forward relevant suggestions from the perspective of listed companies, media and governmental supervision.