Earnings Quality,Auditor Reputation And Financing Constraints

As an important force to promote the development of national economy, the healthy development of small and medium-sized enterprises has received much concern. Although the government introduced a lot of support policies, the SMEs are generally facing with financing constraints. This will not only restrict SMEs’ rapid development, but also reduce the allocation efficiency of social capital. As the measure of the enterprise’s operating performance, earnings quality could comprehensively reflect the enterprise’s current operating condition and the real intrinsic value, to effectively reduce the degree of information asymmetry between the enterprises and outside investors and creditors, also reduce the external financing costs. Furthermore, in view of the listed companies, hiring the higher reputation auditor for annual audit could provide strong support for the integrity of the financial report, also affect the financing process. Based on this, this paper studies the relationship between SME Board listed companies’ earnings quality and financing constraints, and how the auditor reputation affects the relationship between the aforementioned, to provide the beneficial references for solving the financing constraints and promoting the growth of SMEs.Through reviewing literature, this paper argues that:high quality of earnings has the feature of authenticity and persistence, could fully reflect the actual operating performance of the enterprise, accurately provide financial information related to decision-making, and steadily support the development of the enterprise. On this basis, combining with earnings utility theory, information asymmetry theory, signal transfer theory and related research achievements, this paper puts forward the research hypothesis, and takes the SME Board listed companies which kept continuation between 2009 and 2014 as the research samples. This paper uses descriptive statistics, T test, Wilcoxon test, correlation analysis and multivariate linear regression analysis and other methods to test whether high quality earnings could effectively ease the SMEs’ financing constraints, and introduces the auditor reputation as a moderator variable, to explore how the auditor reputation affect the relationship between earnings quality and financing constraints. This paper basically forms the following research conclusions:firstly, SME Board listed companies are generally facing with financing constraints, and this problem is rooted in information asymmetry. When looking for solutions to solve the SMEs’ financing constraints, people should reduce the information asymmetry between enterprises and capital providers. Secondly, real earnings could help outside investors and creditors accurately assess the enterprise’s future earnings and development prospect, reduce evaluation risk and supervision cost and decrease the financing cost. Persistent earnings have more cash flows, could help investors and creditors assess the equity value and reduce the information asymmetry. Persistent earnings also can reflect the enterprise’s stable development situation, improve investors’ confidence, increase the attraction of capital and reduce the financing difficulty. Thus, the real and persistent earnings can help reduce the degree of information asymmetry between the enterprise and external capital providers, effectively ease the financing constraints. Thirdly, hiring auditor with high reputation for annual audit, can provide powerful support for the integrity of the financial report and reliable guarantee for the reported earnings quality, at the same time to release the good signal to capital markets and obtain investors’ recognition and trust. Auditor reputation not only can alleviate financing constraints caused by earnings distortion, but also could strengthen earnings persistence’s relaxation effect on financing constraints. Overall, hiring auditors with high reputation has a positive effect on financing constraints.Based on the research conclusion, this paper puts forward five suggestions from the view of earnings quality, including strengthening accounting system construction, establishing benign accounting culture, perfecting the disclosure system, improve the business performance evaluation method and improve intermediary service institution, and points out limitations in this research and the future research prospects.There are two innovations in the paper. Firstly, this paper discusses how to ease the SMEs’ financing constraints from the new perspective of earnings quality. It not only benefits enterprises to overcome the financing problem by improving the quality of earnings, but also provides theoretical support for the decision of investors and creditors. Secondly, this paper introduces auditor reputation as the moderator variable to verify its influencing mechanism on the relationship between earnings quality and financing constraints, combines accounting, auditing and finance together and provides a new perspective for theoretical research.