Investment Opportunity Set, Internal Control And Real Earnings Management

Investment opportunity set represents the enterprise's future growth space,it is the enterprise value that is formed by managers who judge the future inves tment decisions.Previous studies discover that the relationship between investmen t opportunities and accrued earnings management was positive direction change, bu t it ignores the relationship between investment opportunities and real earnings man agement activities. So the existing researches are not perfect. With accounting standa rds and relevant laws are changing,the supervision strength of external audit is enh ancing persistently, the real earnings management has more hidden and broader spac e, it already becomes more important way to manipulate company's earnings and a ccrued earnings management has been replaced, as well as have serious economic c onsequences for Listed companies. Therefore, it provides good opportunity for test th e relationship between investment opportunities and real earnings management. Mor e importantly, internal controls as the immune system of inside and risk constraint m echanism,which has an effect that not only eases conflict between business owne rs and management but also reduces agency costs and asymmetric information probl ems and then decrease the level of accrued and real earnings management. But i n the face of the environment of investment opportunities, what changes will be happ ened in mechanisms and inhibition of internal control? With the increase of investme nt opportunity set, what changes will be happened in the motivation of real earning s management ? As a rule of contract and internal governance mechanisms, how will the high quality internal controls affect the relationship between investment opportu nity set and real earnings management activities? Up to now, these problems still lac k empirical evidence testing.Based on the above considerations,This paper examine investment opportun ity set,internal control and their interaction effect on real earnings management,and sub-samples examine market environment and state-owned property rights r espectively. The results shows that the motivation of real earnings management declines as investment opportunity set increase.Taking the effect of internal co ntrol system into account,the decline is more obviously,especially in areas of hi gh marketization process and state-owned firms.This may indicate that firms' in vestment opportunity set and internal control have play an important compleme ntary role in terms of suppress firm real earnings management activities.This c onclusion suggests us that we seek for the process of firms' future development at the same time we must focus on internal control construction.The paper o pens new ideas of investment opportunity set and earnings management researc h,provide incremental information for the decision of policy and practice,too.