Research on the Earnings Management Model in the Listed Companies with Meager Profit

Earnings management is one of the important reasons causing poor quality of accounting information. Real earnings management and Accrual-based earnings management can substitute each other when they are used,so trade-off decision for managers between two ways and selection factors for effecting different earnings management ways are the keys for investors and regulatory authorities to prevent and treat the earnings management activities. The article uses a sample of A-share listed companies over 2001-2009 in China and builds a simultaneous equation model based on the result of Hausman Test to verify the trade-off decision sequence of earnings management strategies and find factors effecting choice for earnings management. The research results show that the trade-off decision of real and accrual-based earnings management strategies is a simultaneous decision,the two earnings management manipulations influence each other; managers trade off the two earnings management activities based on their relative costs. The managers will use relatively more accrual-based management activities due to lack of competitiveness in the industry,and use more real earnings management activities due to the higher level of scrutiny or accrual manipulation.