The Research On Earnings Management And Its Economic Consequences Of The Private Placement

As an innovative way to refinance, private placement has lower financingrequirements and less financing cost, which can effectively improve the operatingperformance of listed companies and optimize the allocation of resources in idealcondition. However, due to the immaturity of our external market environment, thereare still many deficiencies and regulatory blanks. These may cause the privateplacement market to malfunction. This paper studies the existence, methods, motives,and economic consequences of the earnings management in the process of privateplacement. Also, theoretical and empirical evidences are provided for the foundationof strengthening the government supervision on the private placement in order tomaximize the positive effect of private placement.This paper focuses on the existence and the way of earnings management inprivate placement. Then further analysis on the motivation of earnings managementis conducted before the private placement and the private placement of shares aheadof the end of the lock. Also, the impact of earnings management on the performanceof the listed companies is investigated. The results show that:(1) Accrual earningsmanagement and real earnings management activities are adopted by privateplacement of listed companies.(2)Before the private placement, the listed companiestake the negative earnings management when facing the major shareholders, and takethe positive earnings management in face of institutional investors; before thetermination of the shares lock-up period, regardless of the additional objects aremajor shareholders or institutional investors, the listed companies will both take thepositive earnings management.(3)Accrual earnings management has an adverseeffect on short-term performance of the enterprises. Compared with the accrualearnings management, the negative impact of real activities on firm perfor mance wasseverer and more lasting. According to the research results, some recommendationsare presented, which may contribute to private placement.