Docstoc

Publicly listed company in China listed companies in the IPO Study on Earnings Management

Document Sample
Publicly listed company in China listed companies in the IPO Study on Earnings Management Powered By Docstoc
					Publicly listed company in China listed companies in the IPO Study on
Earnings Management

 listed company IPO
 Abstract: 1998-2000, the first public listed company in China Offerings
in the empirical earnings management studies, found that the release
year, release year and the year after the release of Chinese listed
companies have engaged in earnings management, earnings management
describe the manipulation of accruals were significantly greater than 0,
and other year after the release did not find evidence of earnings
management.
 I. Introduction
 20 Century 90 since, as financial reveal a hot issue in the initial
public offerings (Initial Public Offerings, IPO) of earnings management
by a wide range of concerns. Teoh et al (1998b) found that there is up in
the IPO year earnings management; IPO, the management of the surplus back
to the original management. And Teoh et al (1998) further found that
companies in the IPO to IPO year and subsequent years are more likely to
profit by the increased depreciation policy and the policy provision for
bad debts.
 Aharony et al (2000) on China's state-owned enterprises between B shares
and H shares issued before and after the change in the total return on
assets, from the side proved the existence of earnings management in the
IPO. They further found that the protection of industries
(transportation, energy, raw materials) due under the care they receive
more qualified IPO, so the motivation to manage earnings are not as good
as non-protected industries.
 corporate earnings management in IPO issues, not only to the immediate
interests of investors in general, and China's stock market can play its
resource allocation function. This analysis revealed Enterprises IPO
earnings management in the hope that will help our accounting standards
and disclosure of perfect capital markets.
 second study design
 (1) China's listed companies DO generate earnings management motivation
 hypothetical 1: China's IPO enterprises, the need to submit the first
three fiscal year's financial information. IPO companies in order to
obtain qualifications and to the successful completion of IPO, there are
pre-IPO earnings management motives, that we can observe handling
accruals (earnings management alternative variable) was significantly
greater than 0.
 hypothesis 2: In the IPO year, as business in its prospectus issued on
the surplus, then made a prediction, in order to successfully complete
the IPO, to obtain a higher issue price and distribution of income, the
general upward its forecast manipulation, that there is a surplus of IPO
companies management motivation.
 hypothesis 3: In the IPO next year, due to the underwriter provided a
reciprocal system, that is one year after the IPO, the underwriters and
underwriting guidance to its listed companies to pay a return visit, a
return visit to the securities authorities report the situation . In
addition, the underwriters for its own reputation, the issuer will also
influence the external financial reporting, it is expected the following
year in the IPO are still able to observe positive earnings management,
but with the IPO and the IPO year than previous years, the motivation is
more important from the outside, so its weak earnings management
motivation.
 hypothesis 4: the beginning from the second year after the IPO, there is
no cause for IPO earnings management, that is, discretionary accruals no
difference between profit and 0.
 (b) information and data on
 report can be divided by the cash flow surplus and cash flows for the
two adjustments, cash flow adjustments as part of the total accruals
(accruals, TDA). The total profit accrued by the manipulation of accruals
(discretionary accruals, DA) and non-discretionary accruals profits
(nondiscretionary accruals, NDA), namely, the TDA = DA + NDA.
Manipulation of accruals for earnings management, alternative variables
reflects the level of earnings management, calculation of non-
discretionary accruals model profit mainly Jones model, modified Jones
model and the KS model.
 model with the accruals calculation of earnings management, in three
steps: first, using no equity financing equity financing business or not
the data during the calculation of regression model parameters; Second,
using the last step of regression parameter calculation of non-IPO
companies handling accruals; Third, the manipulation of enterprise
computing IPO accruals (= total accruals - non-discretionary accruals
profits), or earnings management.
 short history of China's listed companies, so companies should use the
same historical data to estimate the parameters of the length of time is
not enough. Therefore, we will use a certain period of time not to equity
financing of listed company data to estimate regression parameters. Based
on the above analysis, we need two types of data: a class of equity
financing is not a listed company data, used to calculate the regression
model parameters; another IPO the company's data is used to calculate the
listed companies on IPO, earnings management.
 1. The estimated parameters and the IPO sample and the handling of data
prior to 2000 were selected IPO's listed companies, excluding the
placement of shares between 1997-1999 "and the issuance of new shares of
the company, to take these companies 1996-2001 The annual financial
report, the financial report must be listed after the second year after
the financial report. In order to ensure reliability of regression
results, excluding non-industry meet the following conditions: a. not
less than seven companies in the industry; b . the industry in the
selected financial data in less than 35 years of data (if a company has
five years of data can be counted as 5 year data). processing parameters
of samples obtained for the 602 companies, located in 16 industries.
, we selected the industries in the 1998-2000 year for the first time
public offering of the company, a total of 301.
 to eliminate the impact of abnormal values, excluding parameters and IPO
samples one of the following conditions annual data: a. the main business
income or total assets decreased 50%; b. main business income or assets
grew more than 100%.
 2. when lack of cash flow data handling of listed companies in China
started in 1998 released from the cash flow statement, indirect method we
used in 1996 and 1997 adjusted operating cash flows. ie: operating cash
flow: net income + depreciation of fixed assets + intangible assets,
deferred assets and other assets, net fixed assets + amortization of
inventory loss, the amount of possible losses + + clean-up fixed assets,
deferred credits + financial expenses - investment income - (current
assets to increase the amount - the amount of monetary capital increase -
Increase in short-term investments - within one year long-term bond due
to increased investment amount) + (Increase in current liabilities -
short-term borrowing increases - to increase the amount of the end of
dividend payable - long-term debt due within one year increases).
 (c) Empirical Methods
 We first in accordance with the Jones model and modified Jones model
regression, found that their explanatory power are weak, Adj.R2 no more
than 2%, with the similar study explained about 10% less capacity there
is a big gap, and only 30% of the regression parameter was significant.

 as the Kang and Sivaramakrishnan (1995) pointed out, the listed
companies in addition to using income and long-term costs of earnings
management, but also can use the period costs of surplus management. but
KS model is too complex to require more financial data, data length is
not easy to meet and some of the data difficult to obtain. Jones model
and modified Jones model does not take into account the cost during the
period, implied main business revenue and expenses during the period
correlated , while the evidence we find that Chinese listed companies
during the cost and there is no correlation between the main business
income, cost of listed companies can use to manipulate earnings during
the period. we transform the modified Jones model, the increase reflected
the cost during the project, construct a new accruals model are as
follows:
 here: total accruals TDAit = NIit-CFOit, NIit year net profit for the
first t, CFOit t for the first year net operating cash flows; TAi, t-1
for the first t-1-year total assets; ¡÷ REVit for the first t-year
business revenue of the increment; ¡÷ RECit for the first t years of
accounts receivable increment; PPEit for the first t years of fixed
assets; Expense = Finance costs + administrative expenses + operating
expenses; eit is the residual item.
 calculation of discretionary accruals profits, first of all to make use
of non-study data to estimate the period corresponding to the various
business sectors of this thesis from www.5udoc. com [worry documentation]
to collect and organize, for the original author! parameters and then use
regression parameters under the model of non-discretionary accruals
profits, with total accruals minus non-discretionary accruals
manipulation of profits shall be total profits, that earnings management.
adopt a new model of reunification, the explanatory power significantly
increased, Adi.R2 increased to 12.9%, with international accruals model
can explain a considerable, but significant regression parameter ratio
greatly increased.
 3, empirical results and analysis
 company only released when the IPO IPO cash flow statement for the
previous year (before 1998 for the changes in financial position), so we
can analyze the previous year and the IPO its future earnings management.
We found the year before IPO, IPO and the IPO of the year following the
year, there is the manipulation of accruals, but also in the 1% level was
significantly greater than 0, indicate that all three earnings management
exists. while in the second and third years after found no manipulation
of accruals is significantly different from 0, indicating no earnings
management.
 year before the IPO, earnings management is about opening total assets
2.9%; in the IPO year, earnings management of listed companies the
largest of beginning total assets was 7.9%, which is generally considered
the largest in IPO earnings management prior knowledge does not match; in
the first year after the IPO market, there is still Earnings management,
2.1% of total assets at the beginning, although lower than the previous
two years, but statistically significant; the IPO after the second and
third years did not find evidence of earnings management.
 4, Conclusion
 qualification in order to obtain IPO and successful completion of the
offering, enterprises in the initial public offerings during the
existence of a strong earnings management incentive, the paper of Chinese
enterprises during the initial public offering conducted an empirical
analysis of earnings management. We First on the Jones model and modified
Jones model applied in China was tested and found that the application of
their presence in China, we re-construct a calculation of earnings
management accruals models, empirical studies show that the improved
model is indeed better than the Jones model and modified Jones model.
advantage of our improved model, we found that companies on the IPO in
order to meet regulatory requirements and to ensure the successful
completion of IPO in the year before IPO, IPO IPO year and the first year
after the existence of a significant profit management, but also the
greatest extent in the IPO year.
 Reference:
 [1]. Teoh S H, Welch, and Wong T J. Earnings management and the long-
term market performance of initial public offerings [ J]. Journal of
Fiannee, 1998b, 53 (December) :1935-1974.
 [2]. Teoh S H, Wong T J and Rao GR.Are accruals during initial public
offerings opportunistic [J]? Review Of Accounting Studies ,1998,3:175-
208.
 [3]. Aharony C, Lee J and Wong T J. Financial Packaging Of IPO Firms in
China [J]. Journal Of Accounting Research, 2000,38:103 -126.
 [4] J.ones J J.1991.Earnings management during import relief
investigation [J]. Journal Of Accounting Research, 1991,29 (2) :193-228.
 [5 ]. Dechow P M, Sloan R C, Sweeney A P. Detecting earnings management
[J]. The Accounting Review, 1995,70 (2) :193-225.
 [6]. Kang S, Sivaramakrishnan K. 1995. Issues in testing earnings
management and instrumental variable approach [J]. Journal Of Accounting
Researc, 1995,33 (2) :353-367. this thesis from www.5udoc.com [worry
documentation] to collect and collate to thank the original author! /
center>

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:70
posted:4/30/2010
language:English
pages:4
Description: Publicly listed company in China listed companies in the IPO Study on Earnings Management