Discretionary Accrual’s Effect On Financial Constraints

There are plenty of literatures about earnings management, but most of them agree that discreationary accruals is manipulated by the managers who use it opportunistically to overinvest. Discreationary accruals reduces the efficiency of credit allocation and company values,playing as a manager’s grabing hand. It strengthens the management trenches effect, reducing investor protection law enforcement efficiency,reducing injurious effect such as capacity-building inputs.But more and more existing literature now pay attention to that quality management personnel has the profit motive to use discreationary accruals to the market of private information of the future performance. Strategic manipulation of discreationary accruals helps operators to get rid of financial distress,reduces the risk of violation of terms, reduce the cost of financing to help businesses meet the threshold for rights issues and to maximize themarginal benefit. Visiblly, discreationary accruals use as signals does not form a unified certification.In imperfect capital markets exist external capital market frictions, such as asymmetric information and agency costs, causing the cost of external financing than the internal financing cost,generating financing constraint. In the capital market, if the financial situation of the enterprise, the better, the enterprise is likely to get more financing,and the poor financial situation will lead to reduction of the amount of financing,even to can’t complete the financing. Therefore,in the case of asymmetric information,valuable investment opportunities in enterprises subject to financing will be used to manipulate the accrued profits ease financing constraints worthy of attention.In addition, compared to foreign,capital market and legal system environment in our country is not perfect, development is not mature enough. Besides parts of the marketing process is different, so it is necessary to combine our system environment to analyze the financing agent under the control of behavioral differences accruals.In addition, a large number of foreign literature showed that using discreationary accruals is costly, mainly reflected in the market for a negative assessment of enterprise surplus management, reduced enterprises to obtain more financing. Therefore managers as a rational economic man, in terms of financial motives under control of accrued profits mainly depends on the acquisition of benefits compared with the cost. There is less study pay attention to the effect of how discretionary accruals impact on corporate financial decisions.Based on the enterprises which existing investment opportunities subject to the financial constrains, this paper studying the relationship between financial constraints and discretionary accruals. In addition, this paper considers motivation under different market, re-examine the maneuverability of accruals affect financial decisions. Specifically, the study focuses on the following issues: first,before investing, enterprises which have investment opportunities but be subject to financing constrains is willing to use discretionary accruals? Second, for different marketing process, whether there are significant differences of listed companies’ s motivation to use discretionary accruals to ease financing constrains? Third, how does market react to discretionary accruals, does discretionary accruals significantly ease financing constraints? Finally, how does the performance changes after invest?The paper started on firms which are financially constrained but have valuable projects, in order to prove the signal function of discreationary accruals and analyze how discreationary accruals impacts corporate financial decisions. We examine the firms during 2006-2010 to study the relationship between financial constrains and discreationary accruals. Furthermore, we analyse the market liberalization’s impaction on discreationary accruals. The empirical results show that prior to investment,in Contrast with financially unconstrained counterpart firms, financially constrained firms with good investment opportunities have higher discreationary accruals. And this behavior is more significantly in the slow process of market liberalizaton. Furthermore, in financing constrainted firms sample, we find that firms with higher accruals can obtain more financing,which is significantly in both equityand debt financing. These companies get the amount of financing to invest in valuable projects, and ultimately improve corporate performance.These empirical results support that the discretionary accrual can be strategicallyed used to ease financing constraints and ultimately improve corporate value. The study of this paper is order to review the economic consequences of the manipulation of the discreationary accruals behavior, and have some implications for further study of earnings management.