Research On The Impact Of Supervision Mechanism On Earnings Management Of Listed Companies

Many financial fraud cases of Listed Companies in China have revealed defects of supervision mechanism,which not only damage the interests of small shareholders,but also have a bad effect on the good market order.Effective and reasonable supervision of Listed Companies can promote the healthy and sustainable development of enterprises,protect the interests of investors and maintain market stability.Compared with the internal supervision mechanism,external supervision has stronger independence and objectivity.According to the basic norms of internal control,supporting guidelines promulgated by five Ministries since 2008,and the notice of the implementation of internal control standard system jointly issued by the Ministry of Finance and the Commission in 2012,the accounting firms auditing the internal control systems of Listed Companies in recent years become a strong external supervision means.This paper will discuss the effect of supervision mechanism on earnings management from the perspective of internal control audit.This paper reveals,based on the principal-agent theory and signaling theory,that the Listed Company managers have enough motivation to manipulate earnings,which will not only damage to the long-term development of the enterprise,but also undermine the interests of investors.As an effective means of supervision,whether will internal control audit have an impact on the enterprise's earnings management activities?To find the answer,this paper selects data of Shanghai A shares of Listed Companies in 2012-2015 as sample,defines the accrual earnings management and real earnings management as explanatory variables(referring to relatively mature model as measure the degree of earnings management),structures empirical analysis to verify the hypothesis and conclusion.As an important part of the supervision mechanism,internal control audit can effectively inhibit the earnings management behavior of Listed Companies,compared with the companies with no the internal control audit.The implementation of the internal control audit of Listed Companies can lower the degree of earnings management and real earnings management degree,which plays a good supervision effect.Considering China's state-owned enterprises are those that first being compulsory executed the internal audit among domestic Listed Companies,and they are special and representative,this paper further reveals that,with the implementation of internal audit in the enterprise,the state-owned Listed Companies accruals earnings management degree is relatively lower,while the real activities earnings management of other listed companies is relatively lower.