On Earnings Management Behavior Of Enterprises In View Of Equity Investment

As a common and popular issue in listed companies,earnings management has always been the focus of accounting academic research.Earnings management can be regarded as a process in which enterprise managers make judgments and accounting choices when preparing financial reports and fictitious transactions to change financial reports in order to mislead external information users' understanding of the company's business performance or influence the contractual results based on financial data.The existence of earnings management will distort the financial information disclosed by listed companies,thus interfering with the normal operation of the capital market.Among them,equity investment is often used as the operating tool of earnings management by enterprise management authorities.As one of the investment ways with rapid development in recent years,equity investment has been favored by entrepreneurs with a series of advantages,such as high returns,multiple choices,easy operation and moderate risk coefficient.However,the accountant arrangement method of equity investment has always been complex.In practice,different measurement model has different influence on enterprise surplus in the future,which provided an operational space for company executives make use of equity investment to manage earnings,it greatly affect the reliability and comparability of accounting information,thus misleading the investment decisions of the stakeholder and disturbing the order of capital market.Based on the method of case study,this paper selects Youngor group as an object to analysis the means of earnings management by equity investments,motivation and economic consequences in detail,in expect to illustrate how enterprise managers use the equity investment to carry on the earnings management.In this case,Youngor group carries out asset impairment at first,and then changes the accounting method of CITIC shares holding by means of increasing shares and appointing non-executive director,which makes its book profit fluctuate greatly and causes the company's stock price fluctuate greatly.The reason why Youngor managed earnings by changing accounting methods of equity investment as follows,on the one hand is to manipulate the enterprise surplus,smooth profit,after complete the goal of 5 billion in 2016,conducting 2017 financial big bath and thickening net profit in 2018,it can also avoid the adverse effects caused by annual CITIC shares price fell on the stability.On the other hand,it is to lower the stock price and facilitate the increase plan of Li Rucheng,the major shareholder,so that Li Rucheng and his concerted action person can hold more than one third of the equity,thus possessing the "veto power".This paper comes to the following three conclusions.First,the judgment conditions on which Youngor group changed CITIC shares accounting method based is not sufficient.The behavior of changing accounting method should be cancelled.Second,Youngor's behavior of earnings management by means of changing accounting method is suspected of profit manipulation.Thirdly,Youngor group's earnings management behavior may be to cover the large shareholder Li Rucheng's low cost holdings.In the end,this paper puts forward rectification opinions from four points of view,such as accounting standards,regulators and intermediaries,external investors,as well as enterprises,in order to regulate the behavior of enterprise earnings management.Among them,in terms of accounting standards,we should improve the accounting standards to avoid earnings management behaviors.In terms of regulators and intermediaries,regulators should increase the penalties for earnings management and intermediaries should strengthen supervision over listed companies.In terms of external investors,they should improve the judgment ability of financial data and attention should not be focused on a single profit indicator.In aspect to enterprises,we need to improve the organizational structure as well as internal control,strengthen the disclosure of fair value information and improve the basic quality of accounting practitioners.The innovations of this paper are mainly embodied in the following two aspects: firstly,take the transformation of equity investment as the breakthrough point and study how to manage the earnings through the combination of accounting choice and real transaction;secondly,it is proposed that helping the largest shareholder to increase stocks at a low price may also be one of the motivations of Youngor's earnings management.The limitation of this paper is that this case only analyses the situation before the implementation of new financial standards,which can not represent the specific situation after the implementation of new financial standards,and also fails to verify the universality and applicability of the case studied in this paper.