On Effects Of Environmental Protection Law Amendment On Earnings Management Of Heavy Pollution Enterprises

The revised draft of the Environmental Protection Law was considered and adopted by the Standing Committee of the National People's Congress on April 24,2014,and was fully implemented on January 1,2015.The new law has made a large number of major amendments on the basis of the original law,which has play a important role in the prevention and control of environmental pollution in China.In the face of the possible risk changes brought about by changes in the legal environment,heavy pollution enterprises will also face new pressures and challenges in management.According to the political cost hypothesis,when listed companies are subject to strict industry regulations,their earnings management behavior will also be affected.So what kind of changes will the revision of the Environmental Protection Law,the most stringent industry regulation faced by heavy polluting enterprises in the past 20 years,bring about in the earnings management behavior of heavy polluting enterprises?This paper first makes a theoretical analysis of the influence path of the Environmental Protection law based on the existing literature and institutional background,and then takes the research object of the heavily polluting enterprise Jizhong Energy.To observe and analyse carefully the annual reports that it has disclosed for several consecutive years since 2012,and to point to the persistent surplus management phenomenon in the financial statements of the company,It also revealed that the main changes in the management characteristics of the surplus before and after the revision of the “Environmental Protection Law” are: from the main use of accrual surplus management to the main use of real surplus management,the means have become more and more hidden.And the means of earnings management also makes the report information more “green” and “environmental protection”.Finally,we draw the conclusion that the amendment to the Environmental Protection Act made the earnings management behavior of heavily polluting companies more low-key,more subtle,and more difficult for investors to detect.This paper also puts forward countermeasures to solve the problem of earnings management of heavily polluting enterprises in four aspects: enterprises themselves should perfect their own governance structure and establish an appropriate management incentive system.Reducing the damage caused by management surplus management behavior to shareholders 'interests;On the one hand,accounting standards should constantly improve their own loopholes,do not leave the opportunity for managers to manage earnings,on the other hand,they can also include environmental accounting into the reporting system,making the information of heavily polluting enterprises more transparent;Environmental regulations should establish an effective social supervision system from the legislative aspect,and put forward higher requirements for environmental information disclosure of heavily polluting enterprises;The regulatory authorities should not only strengthen the supervision of heavy polluting enterprises,but also pay attention to the cooperative supervision effect with the SFC and other departments.