Research On Top Management's Risk Preference And The Choice Of Earnings Management Mode

Few traditional economics research pay attention to irrational behavior of managers, especially the effect of irrational behavior of managers on earnings management. This article establishes the model of the level of managers' risk preference, and discusses how the level of managers'risk preference affects earnings management by a theoretical analysis and data modeling. Previous studies of earnings management set only one class of earnings management, and this article includes accruals earnings management and real earnings management. Two earnings management modes have different characteristics:the characteristics of real earnings management manipulation mode is that it is relatively complex, varied, difficult to find and having serious consequences. However, accruals earnings management manipulation mode is simple, stable, easy to find and having less severe consequences. Managers with low level of risk preference in general will choose accrual earnings management to achieve the company's business performance objectives; however, managers with high level of risk preference will give priority to real earnings management, and make accrual earnings management as a follow-up of complementary approach.Based on the above background, the paper selects 2010-2014 China's Shanghai and Shenzhen listed companies as a total of 4437 samples, and studies the effects of individual background characteristics of managers on managers'risk assets ratio, the level of managers' risk preference on accrual earnings management and real earnings management, as well as the level of managers'risk preference on earnings management mode selection by using OLS regression. The empirical results show that the level of managers' risk preference has a significant negative correlation with their age and tenure, and has a significant positive correlation with their personal wealth, gender and education. The level of managers'risk preference is significantly positively related to accrued earnings management and real earnings management. In two earnings management modes, managers with higher level of risk preference tend to choose real earnings management more.Based on the above conclusions, this paper proposes the following policy recommendations:First, the company management is a team consisted of the board of directors, the board of supervisors, executive directors and company executives, and its consisting is essential to company operating. Therefore, company needs to build management according to company managers'personal background characteristics, and makes the building team be in line with company's strategic needs to improve the value of the company. Second, the regulatory authorities should strengthen supervision of the companies, asking them to disclose detailed earnings information. For the abnormal situation they should require listed companies to provide real and reasonable explanation to avoid managers' earnings manipulation. Finally, listed companies should improve their own internal control and the corporate governance structure to curb earnings management behavior of executives from the source.