Delisting System And Corporate Earnings Management Behavior

Since China's security market have merely been developing for a short period,lacking of practical experience,there are shortcomings in its mechanisms.The mechanisms characteristics of strong-control listing system and relatively weak-control delisting system has caused a phenomenon.That is many“zombie companies”,who are at continuous loss,have been staying in the capital market for a long time.Since the capital market should have allocated limited market resources for high-quality companies,the above phenomenon seriously disrupted the market's order.Considering this condition,China's regulators have carried out three major reforms on the delisting system since 2012,and gradually formed a financial,transaction and other diversified indicators assessment system,on the benchmark of the mature capital market.However,the effect of the delisting system in actual implementation is still unsatisfied.Compared with mature markets,the average annual delisting rate of our capital market is still low.At the end of December 2019,the new securities law,which took five years to undergo four reviews,was finally approved and is scheduled to be implemented from March 2020.The core of the new securities law is completely implementing the registration system,which means the capital market won't be hard to entrance as it was.Since the capital market resources are limited,on the aim of its long-term healthy development,it is urgent to reform the delisting system so that it can better play the screening role.Because of the above background information,this article focuses on the two delisting system reforms in recent years based on a case analysis.The case company is“~*ST Hehua”,who have survived in capital market for 11 years in the state of earnings-loss.This paper analysis the previous shell-protecting behavior of“~*ST Hehua”,combined with the specific indicators of previous delisting system reforms,aiming to find out the actual impact of China's previous delisting reforms on the earnings management of listed companies,so as to explore the effects of the delisting system in actual implementation and to find its problems,and then provide directions for subsequent reforms.Firstly,this article clarifies the definition of earnings management and delisting system,and then introduces the theoretical basis of the research,namely the theory of information asymmetry and rational economic people.After that,this article sorted out the relevant literatures,focusing on the research related to the implementation effect of China's delisting system,identification,motivation and means of earnings management,as well as the relationship between the delisting system and earnings management.Then on the basis of literature,according to the general logical chain of earnings management of listed companies,this paper analyzes the possible effects of the delisting system on the earnings management of listed companies from the theoretical aspect.Then it comes to the case introduction.Firstly,by introducing the company's profile,analyzing the status of the industry and the company's operating conditions,it was learned that Hechi Chemical Co.,Ltd.was facing a major operating crisis due to its single main business structure and slow industry development,so that initially identified the possibility of earnings management.Then,in the form of a timeline,the history of the implementation and cancellation of Hechi Chemical's previous delisting risk warnings was further collated.After fully introducing the status of the case company,the article further analyzes the inherent motivation of the company's earnings management,which can be mainly divided into the earnings management space from external systems and the pressure of shell-protecting based on internal characteristics.Then the experience recognition method was used to identify the company's three successful and one shell-protecting,and then analyzed the earnings management methods used in the past,mainly including government subsidies,related-party transactions and debt restructuring.The following part is based on the specific indicators related to risk warnings in the two delisting system reforms in 2012 and 2014.Based on the analysis framework of the above theoretical basis,by comparing three previous earnings management behaviors,the specific influence of the system on corporate earnings management behaviors are derived.The main conclusion is that the two delisting system reforms have not reduced the motivation of the company's earnings management,but have prompted the company to shift from accrued earnings management to true earnings management.In specific indicators,the delete of non-net profit has prompted companies to implement more real earnings management of non-recurring profit and loss.The adding of net asset index has induced the company to implement a new goal-oriented earnings management behavior,while the operating income and audit opinion indicators have little impact on the company,reflecting the poor implementation of the delisting system reform in China,and there is still room for improvement.After the above analysis of the case,this article summarizes the problems existing in China's delisting system:that is,the delisting standard has poor constraint,the delisting procedure can be manipulated,the supporting system is unperfect,and the lack of supervision of real earnings management behavior.In response to these problems,suggestions are made from the improvement of the delisting system itself(including the refinement of delisting system indicators and shortening of the delisting transition period),the improvement of supporting systems(including the listing system and supporting systems after delisting),as well as increased punishment In these aspects,aiming at the effective operation of China's delisting system.The meaning of this paper is that,under the background of the gradual progress of the registration system reform,the delisting system also needs to usher in new changes,in order to screen companies expected to flood into the capital market in large numbers,and allocated limited resources to those potential high-quality enterprise.Based on this,this paper analyzes the earnings management behaviors of the typical company who has been at continuous loss,during the process of the delisting system reform,in order to explore the impact of the delisting system on corporate earnings management behaviors,and to point out the deficiencies in the delisting system in China,and put forward corresponding suggestions for the next step of reform,so it has strong practical significance.