| Earnings smoothing refers to the management's use of judgment or structured transactions to manipulate earnings in order to reduce the volatility of reported earnings.It is a special form of earnings management.Although earnings smoothing is a common economic phenomenon,there is no consensus on its nature and economic consequences in academic community.The view of effective contract holds that the management has more private information about the future performance of the company,and through smoothing the earnings,it conveys to the outside world the signal of the sustainable stability of the company's earnings,so as to influence the decisions of stakeholders and the contractual results based on reported earnings.However,according to the opportunistic view,the management can conceal the real performance of the company by earnings smoothing,and even give the outside world a illusion of stable operation of the company,which reduces the quality of earnings and information transparency.A stable earnings sequence will also reduce the outsiders' perception of the company's risks and limit their intervention in the company's operation and management,thus intensifying the opportunistic behavior of the management.Earnings smoothing can be divided into accrual earnings smoothing and real earnings smoothing.The former is realized through accounting adjustment of accrual items in financial statements,while the latter is realized through adjustment of real economic activities.The application of real earnings smoothing in practice is very common,and the real earnings smoothing based on opportunistic motives may damage shareholder value,so it is necessary to study the real earnings smoothing behavior.However,previous studies have provided little evidence to prove its impact on shareholder value.The existing literatures mainly focus on accrued earnings smoothing,while few focus on the economic consequences of real earnings smoothing.In recent years,China stock market has seen sharply rise and fall several times.The instability of the capital market,especially the risk brought by the crash of stock prices,will not only affect the development of the capital market itself,but also pose a threat to the interests of investors.Therefore,from the perspective of the stock price crash risk at the company level,this paper uses the data of listed companies in China capital market from 2007 to 2017 to conduct an empirical study on the economic consequences of real earnings smoothing.The study finds that the real earnings smoothing would intensify the management's behavior of concealing bad news,implementing inefficient investment projects and covering up its resource diversion,thus increasing the risk of future stock price crash.Moreover,when the company's operating environment is highly uncertain,the level of product market competition is low,and the implementation of accrued earnings smoothing is difficult,the positive correlation between the real earnings smoothing and the company's future stock price crash risk is more pronounced.The contribution of this paper mainly includes the following aspects.First,it conducts an empirical study on the economic consequences of real earnings smoothing,which is an area scholars less concerned.This paper discusses the impact of real earnings smoothing on the risk of future stock price crash from the perspective of production cost manipulation and discretionary cost manipulation,and clarifies the mechanism of real earnings smoothing affecting shareholder value.Second,this paper enriches the research on the factors influencing the stock price crash risk.The research results show that the company's adjustment of the operating decisions will affect the future stock price crash risk,providing theoretical support and empirical evidence for researches on the influence of earnings smoothing on the stock price crash risk.The research conclusion provides some references for understanding the companies' earnings smoothing behavior and how to prevent the stock market risk. |
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