Earnings Management Using Equity Investment

In 1998,Youngor Group Co.,Ltd.(hereinafter referred to as "Youngor")was listed on the Shanghai Stock Exchange.Over the past 20 years,Youngor has developed continuously and gradually formed a diversified enterprise development strategy,which mainly includes four business units: brand clothing,real estate development,financial investment and equity investment.In the process of development,Youngor keeps increasing investment and buying shares of listed companies.At the initial recognition,Youngor uses available for sale financial assets as the classification standard of a large number of financial assets to ensure the effective management of earnings.According to the financial data and announcements disclosed in recent years,in Youngor's profit data,the proportion of financial assets with investment income is more and more large,and the impact on corporate performance is more and more obvious.Through the data of the annual report,it is found that the timing of Youngor's sale of available for sale financial assets is related to the profitability of its operating business.When Youngor has some business losses,such as brand clothing,real estate industry,etc.,in order to transmit good performance signals to the market,Youngor will choose to dispose part of the equity investment,which will make the changes in the fair value included in the capital reserve in the previous year be transferred to the current income,and then have an impact on the income statement.Youngor's way of smoothing profits also includes increasing shares to change the way financial assets are accounted for.In the first quarter of 2018,Youngor's performance in investment was not optimistic.Then this paper analyzes the above-mentioned ways of earnings management of Youngor.The thesis is divided into six parts.The first part is the introduction.The second part is an overview of the theory,including the concept of equity investment,relevant standards and regulations,as well as the theory of earnings management.The third part is the case body,which explains the current situation of Youngor's equity investment from the three aspects of Youngor's background,asset distribution and business performance.At the same time,comparing Youngor with the data of seven wolves,SEMA clothing and textile clothing industry,it is found that the investment income of Youngor is closely related to its core profit,and the related earnings management activities are also compared Typically,there are three ways to manage earnings:(1)disposal income of equity investment;(2)change of accounting method of equity investment;(3)change of fair value of equity investment.The fourth part is a case study.It discusses the motivation of earnings management from five aspects: the motivation of turning loss into profit,the motivation of criterion change,the motivation of signal transmission,the motivation of debt contract and the motivation of opportunism,and analyzes the economic consequences of earnings management.The fifth part puts forward suggestions,respectively,from improving the accounting standards related to equity investment,strengthening the internal governance and supervision of Youngor,and improving the effectiveness of external supervision.The sixth part summarizes the case of Youngor's earnings management,and then draws the Enlightenment of earnings management.The main innovations of this paper are as follows: most scholars at home and abroad adopt the method of empirical research in the research of earnings management.This paper adopts the method of case study,through the comparison of Youngor's financial data from 2009 to 2018,with a long time span,analyzes the changes of the company's financial data and the deep-seated reasons behind the changes of the data,and expects to see the big from the small.