1、1 外文翻译 原文 Propping through related party transactions Material.Source:Review.of.Accounting.Studies Author: Ming.Jian ,T.J.Wong Based on a sample of Chinese listed firms from 1998 through 2002, this paper documents that listed firms prop up earnings by using abnormal related sales to their controllin
2、g owners. Such related sales propping is more prevalent among state-owned firms and in regions with weaker economic institutions. We also find that these abnormal related sales are not entirely accrual-based but can be cash-based as well, and they serve as a substitute rather than complement to accr
3、uals management for meeting earnings targets. Since these abnormal related sales can be cash-based, there is significant cash transfer via related lending from listed firms back to controlling owners after the propping. However, no cash transfer via related lending is found to be associated with acc
4、ruals earnings management. Using a sample of listed firms in China, we study how institutions and firm organizational structures in a transitional economy shape the ways firms use related party transactions to manage earnings. This paper is motivated by recent research on economic institutions and a
5、ccounting properties. In contrast to prior studies that attempt to draw broad inferences from data across many countries, this paper utilizes the intricate institutional structures of a particular country and the variation of the institutions across provinces within the country. In addition, by anal
6、yzing related party transactions as a form of earnings management, this paper complements prior research such as Leuzetal.who focus primarily on the relationship between accruals and earnings management. China offers a natural setting for a study of the questions for three reasons. First, as in many
7、 other emerging markets, the capital, product, and labor markets in China are underdeveloped. As a result, firms in these markets organize into groups to form internal markets to lower transaction costs (Khanna and Palepu 2000). Further, the 2 restructuring process before the initial public offering
8、 of listed state-owned enterprises (hereafter SOEs) creates corporate groups with frequent related party transactions between the listed subsidiaries and the parent companies, which serve as the controlling owners. Second, the bright-line rules for share issuance and delisting in China allow us to i
9、dentify clear evidence of earnings management incentives. Chinese securities regulators have set two earnings targets that regulate firm listings. In particular, a firm must report at least 10% return on equity (ROE) to maintain its listing status and 10% (6% after 2001) ROE to issue new shares. The
10、se targets create incentives for controlling owners to assist listed firms in managing ROEs. We expect that more income-inflating transactions are associated with reported ROEs that are only slightly above the earnings targets. Third, the weak legal and market institutions in China implies a higher
11、frequency of propping (Cheung et al. 2006) and increases the power of our tests. The significant variation in the degree of market development and government intervention in business activities across Chinas thirty provinces, autonomous regions and municipalities (excluding Hong Kong and Macau SAR)
12、allows us to examine the cross-sectional effects of legal and market institutions on propping. We hypothesize that controlling owners inflate Chinese listed firms revenues and earnings through related sales to qualify for rights issues or to avoid delisting.4 Chinese firms have ample opportunities t
13、o use related sales for earnings management because related party transactions are very common. One reason for their prevalence is that SOEs rely heavily on internal markets for materials, products, labor, and capital. Before Chinas economic reforms, these markets were non-existent as the central go
14、vernment directed all aspects of SOEs operations. Another reason is that close to 80% of the listed firms in China were previously production units that had been carved out from their parent SOEs, which serve as the controlling owners after the listing (Aharony et al. 2000). After the carve-out and
15、IPO, the listed subsidiaries continue to engage in frequent related party transactions with their parent SOEs. Following Khanna and Yafeh (2005), we use related sales to proxy for propping because they are one of the most frequent types of related party transactions in our sample. The high frequency
16、 of these transactions allows sellers to inflate earnings simply by shifting next periods related sales to the current period. Compared with real activities manipulation such as aggressive price discounts to 3 increase sales or deferral of R&D projects discussed in Roychowdhury (2006), accelerating
17、related sales are likely to be less costly to the manipulating firm. We hypothesize that the level of related sales is abnormally high when firms try to meet earnings targets. We note that firms could use other types of related party transactions such as asset injections as an alternative way to ach
18、ieve propping, but such transactions are much more infrequent and thus more easily detected. According to the CSRCs 1999 regulations for rights offerings, infrequent items such as gains and losses from investments and sales of fixed assets are no longer allowed to be included in the calculation of R
19、OE, which suggests that government regulators regard nonrecurring items as potential earnings management tools. In the diagnostic checks reported in Sect. we examine other operating items, such as related purchases, and non-operating items, such as asset or cash injections. The results do not suppor
20、t the notion that firms use these items for propping around the time of share issuances and delistings. Chinese listed companies have been required to disclose related party transactions since 1997. This disclosure was incomplete and irregular in the first year (Yuan 1998), but more systematic there
21、after. Most companies report in a special footnote to their financial statements the identity of their related parties, the relation with these related parties (for example, percentage of shares held), and the types and amounts of related party transactions. Due to the complexity of some Chinese cor
22、porate groups, footnote disclosures of these connected dealings can be very complicated. For instance, Shanghai Dragon Corporation reported more than 140 transactions with more than 100 related parties in 2002 alone. Based on the financial statement footnotes on related party transactions, we manual
23、ly collect and classify each transaction by the nature of the transaction and the related party involved. Generally, the major related parties are the shareholders (or companies in the shareholders group), the subsidiaries and the associated companies of the listed companies. Some other related part
24、ies include the subsidiarys minority shareholders and the listed companies ex-shareholders. We classify related party transactions into 17 different types of transactions. The firm-year frequency and the average value for each transaction are as follows: sales (47.29%, RMB 303 million), purchases of
25、 goods and products (44.50%, RMB 5.5 billion), accounts receivable and payable (37.07%, RMB 1 billion), loans to and from related parties and other receivables and payables (51.32%, RMB 1.8 billion), 4 service revenues (12.53%, RMB 78 million) and expenses (22.08%, RMB 66 million), interest income (
26、14.57%, RMB 11 million) and expenses (3.6%, RMB 18 million), asset purchases (10.44%, RMB 136 million) and sales (5.69%, RMB 75 million), stock purchases (7.95%, RMB 6.8 billion) and sales (5.56%, RMB 51 million), rent revenues (11.90%, RMB 10 million) and expenses (28.63%, RMB 35 million), joint in
27、vestments (2.73%, RMB 83 million), and loan guarantees to related parties (24.87%, RMB 1.4 billion) and from related parties (23.49%, RMB 3.6 billion). The average total assets of these firms are RMB 1.96 billion. Panel A of Table 2 reports summary statistics on related sales with various types of r
28、elated parties in the three general categories of firm ownership. Specifically, 57 and 48% of the central and local government firms, respectively, have related sales, while only 37% of the nonstate firms report such dealings. The majority of these intra-group trades involve the largest shareholder,
29、 with 48% of central government firms and 40% of local government firms. Related sales with the second-largest shareholder are much less frequent, ranging from 2% for local government firms to 5% for central government firms. This study uses a sample of firms listed in China from 1998 through 2002 t
30、o provide evidence of propping through related party transactions. China offers a natural setting for studying the shifting of resources between controlling owners and listed firms due to its underdeveloped capital, product, and labor markets； bright-line rules for share issuance and delisting； and
31、weak legal and market institutions. Our evidence shows that controlling owners of Chinese listed firms engage in propping through related sales. The increase in related sales is associated with higher operating profits, and related sales are used to damp negative industry earnings shocks when listed
32、 firms have incentives to manage earnings. By using such inter-company trades to meet securities regulators earnings targets, the controlling owners help the listed firms maintain their listing status or qualify for rights issues. Propping through related sales can be effected through cash-based, ra
33、ther than entirely accrual-based, transactions. Related sales and discretionary accruals are found to be substitutes for earnings management. When firms generally have sales transactions with their related parties or they have positive abnormal related sales, they have a weaker tendency to use discr
34、etionary accruals to meet earnings targets. However, we find that firms have a stronger tendency to use discretionary accruals to inflate earnings when they do not have related sales or when they have not engaged in related sales management. Also, cash-based propping through related sales is associated with the transfer of cash back to the controlling owner through related lending. Since discretionary accruals management does not involve cash transfers, such earnings management activity is not linked with subsequent cash transfers.
