Earnings Management Motivation And Cost Stickiness

Cost is an important topic in management accounting.The traditional theory of cost behavior says that the change of cost is proportional to the change of sale,but scholar studies show that the change is not a linear between cost and sale.Cost increases more with the increase of sale than it decreases with the decrease of sale,which is called cost stickiness.Enterprise cost management is closely related to managers.If managers have earnings management motivation,the cost adjustment will not be in line with the optimal resource allocation of enterprises,resulting in cost stickiness.China's listed companies generally have earnings management motivation in the process of offering shares and other financing.Since China Securities Regulatory Commission issued “Administrative Measures for Securities Issuance of Listed Companies” in May 2006,allowing listed companies to refinance by private equity placement,the number of private equity placements and the scale of fund-raising have been rising.Private equity placement has exceeded IPO,rationed shares and public offering,and became the most important equity financing way for enterprises currently.No scholar studies cost stickiness from the perspective of earnings management motivation of equity financing.As an important source of capital for the listed companies,private equity placement may significantly affects the management decision,including the cost decision.Therefore,this paper discusses how the earnings management motivation affects the cost stickiness based on the private equity placement scenario.This paper combine theoretical analysis and empirical research,use data form China's listed companies in stock markets of Shenzhen and Shanghai over the period 2007-2016 as the research object,discuss the influence of earnings management motivation on firm cost stickiness when raising fund from outside investors by private equity placement.The empirical results show that in order to attract outside investors to subscribe for shares,promote the smooth issuing of private equity placement and raise more funds,listed companies which have private equity placement reduce more cost when sale decline,leading to weaken the firm cost stickiness.Further evidence shows that,private equity placement weaken firm cost stickiness obviously in stateowned enterprises and when only issuing to outside investors,but not obviously in big four auditing.