Study On The Relationship Between Deindustrialized Investments And Earnings Management Of Chinese Listed Company

In the context of transition economy in China,the switch of hot investment field and in the special background of the reforms of non-tradable share and regulations on capital raised,misappropriation of funds and the deindustrialized investment of Chinese listed company(DICLC),become increasing widespread.Unlike the industrial investment,the DICLC,an investment method in China,needs company to invest capital in the field that not related to its current industry chain.The purpose of the DICLC is to generate high return in a short-term,therefore the DICLC investor usually does not participate in the operation and management of investee.The main form of the DICLC includes entrusted investment,investment real estate,venture investment,entrusted loans,and private equity investment.Profits from industrial field can be assigned to the deindustrialized area.The DICLC makes the capital of a company recycled more quickly and effectively.After this cycle,funds that originally generated for industrial investment from the capital market return to the capital market again.The uncertain return of the DICLC makes the earnings management behavior arises.Therefore,it is important to analyze the relationship between earnings management and deindustrialized investment of Chinese listed company.Based on the theories such as modern contract,principal-agent,and corporate governance,this paper used a research method combination with theoretical analysis and empirical study to explore the relationship between deindustrialized investment and earnings management in three points,including the reason DICLC go to induce earnings management,the ways that DICLC affect the earnings management and the relationship between deindustrialized investment and earnings management.The underline transaction item is added as an important factor in the degree measurement of earnings management.Based on the perspective that deindustrialized investment induces the earnings management,this paper analyzed the motivation,mechanism and relationship of deindustrialized investment and earnings management.The paper used the data of Chinese listed companies which are A shares market in Shanghai and Shenzhen from 2007 to 2014 to do the theoretical analysis and empirical test.The study found that:(1)Deindustrialized investment is an important factor in earnings management,the earnings management of DICLC is significantly higher than the earnings management of the industrialized investment company;(2)The company did DICLC investment has high motivation to manage earnings,including sustainable development motivation and salary motivation;(3)There is a strong positive correlation between deindustrialized investment and earnings management,the higher the degree of deindustrialized investment,the higher the degree of earnings management.In the background of the special environment in China,deindustrialized investment provides a new explanation of motivation for earnings management.The degree of earnings management increases with the increase of the degree of deindustrialized investment.Under an equity concentrated relatively and insider controlled environment,the company has higher possibility do the deindustrialized investment for short-term benefits.Moreover,the uncertainty of the DICLC benefit induces the earnings management.Therefore,the DICLC in China need guidance and specification.The capital raising and related information disclosure need more regulation.It is important to observe the way of capital raising and the use of it,to guide the development of the core business of company and to achieve higher allocation of resources.