Research On Earnings Management Of ST Company

In correspondence with the development of Chinese economy,Chinese regulatory authorities have continuously introduced laws and regulations to guarantee the healthy and stable operation of China’s capital market.The ST regulation is such a risk warning system for Shanghai and Shenzhen stock market.List companies which experience a two-year consecutive loss will be affixed with “*ST” in front of its stock.If they keep losing money for three years or more,it will be suspended or even delisted.This regulation is designed to alert investors to such companies’ financial risks and to avoid huge losses of investment due to the company’s production and operation problems.Just like a coin,everything has two sides.The main aim of the ST regulation is to stimulate the company to continuously improve its own operations and to maximize their use of social resources.However,due to the imperfect information disclosure mechanism of China’s stock market,entrusts agents and information asymmetry,those problems provide favorable conditions for enterprises to conduct earnings management behavior.In particular,ST Companies will use a series of accrual and non-accrual methods to manipulate companies’ financial statements in order to maintain the valuable “shell” resource,i.e.the status as a listed company.However,these behaviors have greatly influenced users to understand the accounting information and to make reasonable investment decisions.In other word,the manipulation of earnings will harm investors’ interests and reduce the market efficiency.This article selects *ST Yaxing Company as the study object.From 2011 to 2017,this company experienced the ’capped-uncapped’ process twice in just seven years.The first ’uncapped’ process did not improve the company’s production and management,so it was capped for the second time.So in the second time,the company has a larger motivation for earnings management.In the first chapter,we mainly discuss the background and significance of this study.In the second and third chapter,we sorted out domestic and foreign related literatures on the meaning,motivations and methods of earnings management,which laid a theoretical foundation.The fourth chapter introduces typical methods of earnings management for ST companies.We also gathered descriptive statistics of 51 ST companies in Shanghai and Shenzhen stock market in 2017 and found that most ST companies use non-recurring gains and losses to achieve a turnaround.The purpose is to get rid of the risk of delisting.In the fifth chapter,we described the background of both *ST Yaxing and the whole chemical industry.In the sixth chapter,we applied the case analysis method to analyze its earnings management behavior of *ST Yaxing,and focused on its second uncapped process in 2016 to find that *ST Yaxing used ’real earnings management’,mainly in manipulating nonrecurring profit and loss items,selling assets to related parties,accepting government subsidies,and manipulating products and sells.All contributed to its turning into profit,and the net assets turned to positive to maintain the “shell”.In the end,we used the financial indicators and event research methods to conduct an in-depth discussion on the company’s follow-up performance.The extensive existence of earnings management in ST companies is rooted in the imperfection of China’s unsound delisting system.So at the end of the paper,we put forward some suggestions on how to curb the phenomenon of earnings management.On the one hand,it is necessary to improve the accounting standards and strictly control at the regulatory of enterprises.On the other hand,we can enrich the measurement indicators and enact a reasonable delisting system.