Conforming Or Non-conforming Earnings Management Strategies?

Recent years,with the growth of the Chinese economy,the capital market has been a vital conduit for social resources.The benefits or loss is closely watched by stakeholders,creditors and external stakeholders.The high and low of the surplus reflects the management ability of managers and the advantages and disadvantages of the development of the enterprise,etc.,which based on the information of the surplus status.As the development of the study and the development of the capital market,more and more scholars have discovered it.To meet the expectations of investors,to meet the analysts’ forecasts,or for a series of special purposes,listed companies will manipulate the earnings of external disclosure.That is,the management behavior.These behaviors directly lead to the decline of financial information quality,which affects the authenticity and reliability of accounting information.Because the surplus information does not accurately reflect the true business conditions of the enterprise,investors will make the wrong decision about the wrong information.A series of negative effects brought by the surplus management have weakened the efficiency of the capital market to perform its resource allocation function and the healthy and long-term development of the economy.But the earnings’ management is not without cost,companies need to balance the potential benefits of earnings management with costs,and taxes are an unavoidable cost of business.If the enterprise chooses the management mode of virtual income increment,the taxable income will also rise as the accounting profit increases,and businesses need to pay taxes on inflated incomes.The mode of earnings management,which is adjusted for profit while changing the taxable income amount,is called the conforming management model.If the enterprise choose to use the differences between accounting standards and tax laws,it will not change the taxable income amount while transferring the accounting profits,operating non-taxable items,which is called the non-conforming management model.But it’s important to note,it is easy to attract the attention of tax authorities by manipulating non-taxable items.If the tax department finds that the enterprise adopts the method of the management which is inconsistent with the tax,it will impose severe punishment on the enterprise,thus increasing the income tax cost of the enterprise surplus management.This paper discusses the proportion of the conforming management model and the non-conforming management model in the total earnings management mode.Since the establishment of corporate system,control and management rights have been gradually separated,and the principal-agent theory has emerged.The first kind of principal-agent theory mainly studies the problem of agency between shareholders and management,including moral hazard and adverse selection.In order to reduce the agency cost,the company will bring the interests of the shareholders and management to the same by signing contracts with operators or implementing incentives.The second type of principal-agent theory mainly focuses on the interests of large shareholders and small shareholders.Due to the high proportion of shareholders and relatively centralized control,large shareholders can appoint managers to represent them in their daily affairs,which can easily lead to "large shareholder control problems".Large shareholders are likely to encroach on small shareholders for their own sake.Due to the special system environment,the problem of agency between large shareholders and small shareholders is serious.A dominant situation of large shareholder is relatively common in the listed companies,and because of the asymmetry of information,small shareholders have little incentive to collect information and bear the cost of collecting information to supervise and control the predatory behavior of large shareholders.Therefore it is very easy to generate large shareholders to seek their own interests to maximize the interests of small shareholders.Based on the existing domestic and international studies,this paper lays the theoretical foundation and conducts empirical regression analysis on the premise of combing relevant literature at home and abroad.It mainly explores the influence of the shareholding structure in the enterprise,especially the proportion of the shareholding ratio of the first largest shareholder,and what impact will it have on companies choosing the conforming management model and the non-conforming management model.At the same time,we also study on the influence of tax collection intensity on the relationship between the shareholding ratio of the largest shareholder and the income tax cost.In particular,whether the higher tax administration intensity will curb the corporate’s choice of tax inconsistent earnings management,which with the largest shareholding ratio of the largest shareholder.AND to propose appropriate regulatory recommendations and specific directions that may be explored in the future.Empirical results show that:(1)companies with a lower shareholding ratio,the largest shareholders are more likely to choose the non-conforming management model;(2)when the tax collection intensity of the listed companies is higher,the incentive to choose the non-conforming management model for listed companies with the largest shareholding ratio will decline;The remainder of this paper is arranged as follows:the first part is the introduction;The second part is theoretical foundation and research hypothesis;The third part is research design;The fourth part is the empirical analysis and results.The fifth part is research conclusions and policy recommendations.