Research On Earnings Management Of Non-recurring Profit And Loss Classification Changes In Financially Distressed Companies

Core earnings after deducting non-recurring gains and losses can reflect the quality of earnings and the sustainability of future earnings.It is an important reference for stock pricing and has a strong guiding role in the efficiency of resource allocation in the capital market.Therefore,it has always been the core indicator concerned by investors and analysts in the capital market.In a number of regulatory fields and performance evaluation indicators,the CSRC has emphasized that the net profit after deduction of non-deductibles is used as a regulatory profit indicator.The continuous improvement of external regulatory agencies’ supervision of corporate core earnings may give rise to new incentives for listed companies to adjust their core earnings and profit structure.This paper selects Shanghai and Shenzhen A-share listed companies other than the Science and Technology Innovation Board from 2013 to 2020 as research samples,based on principal-agent theory,signal transmission theory,information asymmetry theory and prospect theory,Mc Vay’s econometric model was used to measure the sample companies’ unexpected core earnings.The residual of the model is used as the measure of enterprise classification change earnings management,This paper empirically examines the behavior of the management of a company in financial distress to change the company’s profit structure by changing the classification among items.The results show that listing in financial distress reduces the net non-recurring profit and loss by changing the classification of "non-operating expenses" to improve corporate earnings structure,companies in financial distress will use the classification change between core and non-core items to achieve "zero earnings" and "last year earnings" target threshold;High quality audit can more effectively restrain the classification change manipulation of downward transfer costs.Therefore,based on the empirical results of this paper,suggestions are put forward: the regulatory authorities should improve the regulatory rules to improve the credibility of the net profit index after deduction of non-deductibles,and the external auditors of enterprises should focus on strictly reviewing the classification and manipulation of downward transfer expenses.Accounting standard-setting institutions should focus on and attach importance to the collection of accounting elements.The research conclusions of this paper have certain reference and enlightenment for restraining the classification of financially distressed companies,changing earnings management and improving the efficiency of capital market resource allocation.It provides a reasonable method for regulators and auditors to identify the earnings manipulation behavior of enterprises,and also helps to evaluate the authenticity and effectiveness of the financial indicators of net profit after deduction in my country,and then evaluate the supervision of policies by external regulatory agencies.