Research On Continuous Classification Shifting And Market Reaction From The Perspective Of Corporate Governance

Information disclosure has an important impact on the development of the capital market and the decision-making of investors.Therefore,earnings management has always been a topic of concern for scholars.The existing research literature on earnings management focuses more on accruals earnings management and real earnings management,while less research on classification shifting.Classification shifting is the intentional misclassification of items in the income statement by managers.Unlike accruals earnings management and real earnings management,it does not change the company’s net profit,but only adjusts the company’s earnings structure,and operating costs are lower.This method is also more subtle.Some domestic scholars have found that with the constant development and improvement of China’s security market,operating profits play a more important role in market pricing.Investors and analysts will also pay more attention to core earnings when assessing the value of the company.In order to meet the expectations of investors and analysts,China’s listed companies will achieve the purpose of controlling the core earnings and adjusting earnings structure through the means of classification shifting.Based on the existing researches,this paper discusses the effects of the classification shifting only in t period and the continuous classification shifting behavior in t and t+1period on the core earnings persistence,and during the following period after earnings disclosure the market’s reaction for the company carrying out classification shifting only in t period and the company carrying out continuous classification shifting in t and t+1 period.Finally,from the perspective of corporate governance,the impact of independent directors and institutional investors on the continuous classification shifting behavior was examined.This paper selects the Shanghai and Shenzhen A-share listed company from 2011 to 2015 as samples,drawing on McVay’s(2006)core earnings forecasting model to estimate the company’s unexpected core earnings,then judging the classification shifting company and further classifying the classification shifting company into the company carrying out classification shifting behavior only in t period and the company carrying out continuous classification shifting behavior in t and t+1 period.The study found that the classification shifting behavior only in t period will reduce the core earnings persistence,while thecontinuous classification shifting behavior in t and t+1 period will not lead to the reduction of core earnings persistence;during the period after the disclosure of earnings,investors can see through the companies carrying out classification shifting only in t period,but cannot see through the companies carrying out continuous classification shifting in t and t+1 period;in addition,in China,institutional investors and independent directors do not play a significant role in restricting the continuous classification shifting.Finally,according to the conclusions obtained in this paper,some relevant recommendations are made respectively to accounting policy makers,market regulators,corporate governance and investors to help accelerate the improvement of accounting policy guidelines,market supervision,and corporate governance,as well as improve the quality of company accounting information,and it is helpful for improving the quality of accounting information users’ decisions.At the same time,this article has enriched the research of classification shifting.