The Mechanism Between Earning Management And Capital Expenditure

Earning management has been a hot issue in finance research area. There are mount of research consequences of earning management. But the literature rarely explore whether earning management affect business decision of the enterprise. Investment decision is one of important business decision. The researchers pay more attention on the impact of earning management on investment results. The issue is not clear on how earning management affect investment results. The real market is not perfect, it makes the investment theory which related to profits more and more useful, the capital expenditure in future is limited by the level of corporate profits and financial status. Earning management can control report earning numbers. One important incentive of earning management is to abstract investment from external stakeholders. The earning management is related to capital expenditure and financial constraints based profited investment theory. But scholars merely pay attention to how the three problems linked. Therefore, this paper attempt to explore the role of financing constrains.This paper selects listed companies in Chins’s non-financial sector between2006and2012as samples. By constructing the relational model to explore the interaction mechanism between earning management, financial constraints and investment. The study have shown that financial constraints plays an intermediary role between earning management and investment. This paper takes four parts to prove financial constraints plays an intermediary role between earning management and investment. First, the third chapter is used to prove positive correlation between earning management and investment. Secondly, the fourth chapter describes that corporation financial constraints state will encourage enterprise to increase the level of earnings management. The fifth chapter proves corporate earning management can alleviate the financial constraints state. The two sections describe the interaction between the financial constraints state and earning management. Then, the sixth chapter proves the effect of earning management on investment is greater in financial constraints enterprises than in non-financial constraints enterprises. This paper combines four chapters to illustrate the intermediary role played by financing constraints.The study on this topic is in favor of clarifying how earning management affects allocation of resource in the enterprise. This study can extend economic consequences of earning management research. Besides, it makes investors decision of businesses more scientific and more rational. It also helps to protect investors and other stakeholders. At the same time, it has important theoretical and practical value for government and financial institutions to make relevant measures and decisions.