Research On "Shell-Preservation" Earnings Management And Its Effect Of M Company

Compared with non-listed companies,the listed companies have a series of advantages in financing channels and social reputation,which makes the listing qualification is regarded as a valuable "shell" resource for many listed companies in China.However,under the current capital market system in China,when a listed company meet operational or financial problems,its stock trading will be warned of risks,so as to remind investors to pay attention to relevant risks.Therefore,some companies that are warned of risks,often take various methods to improve their reported profits,in order to avoid the consequences of suspension or even delisting.Due to the late start of China’s capital market,the delisting risk warning system and related listing and delisting regulations are not perfect,and the regulations are not fully coordinated with corporate accounting standards,which makes companies "protect the shell" when they actually issue financial reports.And there are opportunities to use a series of earnings management methods to adjust profits,so as to achieve "shell protection".Based on the background of the delisting risk warning system and combined with the relevant theories of earnings management,this paper conducts a case study on M company with "shell protection" behavior,and mainly analyzes M company using accrual earnings management and real earnings management in 2018-2019.It achieves the purpose of removing the cap and protecting the shell.And this paper analyzes the methods,conditions and implementation degree of M company’s shell-protected earnings management,and finally discusses the effect of its shell-protected earnings management.Based on the above research,the study found that:(1)After being warned of delisting risk,M company can use accrual earnings management and real earnings management methods to increase its reported profits,temporarily overcome the crisis of delisted,and achieve the purpose of removing the cap and protecting the shell.(2)The profit brought by M Company’s shell-protected earnings management is not sustainable.Although its report performance has rebounded in the short term,the quality of cash flow is not good,and the profit has declined in the following years.(3)There is a misalignment between the delisting risk warning system and accounting standards,and the supervision is not rigorous enough.The fact that M Company’s shellprotected earnings management can be implemented shows that the delisting risk warning system is not completely rigorous,the delisting conditions are not strict enough,and the regulators have not considered other key indicators of M Company from multiple perspectives.Based on the above research,this paper finally summarizes the shell-protected earnings management behavior of companies that have been warned of risk and the degree and effect of their earnings management.And it puts forward relevant suggestions such as improving the delisting system of capital market,coordinating regulatory system and accounting standards,and standardizing related party transactions.