Can Financial Development Suppress Enterprises Through Earnings Management To Relieve The Financing Constraints?

During last decade, as an "emerging and transition" economies, the rapid development of China’s financial generate huge effects on the prosperity of economic development of our country, especially for the growth of many listed companies. Both based on the analysis of macro national level of the system and mechanism of microscopic mechanism, financial development can drive the area economic growth has been confirmed by many empirical studies. Numerous of the microscopic mechanism studies have found that financial development can effectively alleviate the financing constraints of enterprises. Investigate its mechanism of action is because when a country’s financial development degree is low, its direct consequence is that when companies face can be profitable investment projects, it is difficult to obtain external financing, which is facing financial constraints. Summary previous empirical conclusion, financial development may be to influence the enterprise’s financing constraints from two aspects:the scale and efficiency. First, by expanding financial resources, products and increasing the scale economies, financial development can reduce the risk of investors and transaction costs, and provide enterprises with more credit funds; Second, the financial development can help reduce market asymmetric information problems and improve the efficiency of the allocation of funds to ease corporate financing constraints. From these two aspects, previous studies based more on the external market level,the financial development operating mechanism acting on the enterprise itself were not clearly studied.For the first time, three keywords:financial development, financing constraints, and earning management associated together in this article. Based on the theory that the financial development can reduce corporate financing constraints and financing constraints is regarded as the motive of earnings management of enterprise, this paper select China’s manufacturing industry data from 2004 to 2009 year, through lag of processing, the actual regression of the year for 2006-2009, trying to research whether financial development could suppress enterprises through earnings management to alleviate the financing constraints. In other words, whether there is a substitution effect on the ease the financing constraints between financial development and earnings management. This article keep financial development, financing constraints, and earnings management three key words together is one of the biggest innovation of this article.The enactment of the US Sarbanes-Oxley, causing a global institutional change within the scope of whole world. The flexibility of accrual-based earnings management decreased and the cost increased. Real earnings management more and more get the favour of enterprise management authorities. Roychowdhury (2006), puts forward the three ways of the real earnings management:(1) offering excessive sales discounts or lenient credit terms to temporarily boost sales revenues in the current period, (2) conducting over-production to report a lower cost of goods sold in the current period, and (3) reducing discretionary expenditures in the current period, and designs three modle for each. We can see that as the main production mode of manufacturing activity have more real earnings management as the main manufacturing production more real earnings management activities.For the manufacturing industry of our country, generally larger degree of financing constraints, enterprises authorities will have more motives for earnings management to alleviate enterprise financing constraints. So when the external financial development process changes, because of external financing channels broaden and the reduction of the information asymmetry, whether the enterprise will reduce earnings management to ease the level of financing constraints or not.In this paper, the measure of the development of the financial taken by Fan (2011) of China’s regional financial marketization index, the add 1 take logarithm, as a measure of the development level of financial variables; On the measure of financing constraints, this paper adopted Kaplan Zingales (2010) KZ index as a measure of financing constraints, the bigger the KZ index is, the more serious the financing constraints faced by the enterprises. In the part of the robustness test, this paper draws on the cash-flow sensitivity modle proposed by Almeida (2004) as the measure of the degree of enterprise financing constraints, and the sensitivity of cash flow is more powerful, the more serious the financing constraints faced by the enterprises; the measure of earnings management try to adopt a more comprehensive index:accrual-based and real earnings management.With financing constraints as the dependent variable, financial development and the earnings management as the independent variable, added interaction item of earnings management and financial development, trying to investigates whether support this hypothesis or not.After making regression to the big sample, the main findings are that financial development can significantly inhibit the enterprise through accrual-based earnings management, offering excessive sales discounts or lenient credit terms to temporarily boost sales revenues in the current period, and conducting over-production to report a lower cost of goods sold in the current period to ease the financing constraints, while for reducing discretionary expenditures in the current period to alleviate the impact of the melt constraints were not significantly. We also group data according to the nature of property rights of enterprises, the paper also found that, compared to state-owned enterprises, for the private listed enterprises, financial development can inhibit earnings management to ease the financing constraints more significant. We also provide new interpretation for mechanism that the financial development can alleviate enterprise financing constraint, and also indirectly enriched the study of the relationship between financial development and the earnings management research, so as to enrich the microscopic evidence to support financial development promotes economic growth.