| Summary: | 碩士 === 國立高雄第一科技大學 === 金融研究所 === 99 === Financial report serves as an important element in the process of business communication between the outside investors and the corporate. Namely, the main purpose of financial report is to provide relevant information to investors and help them in making decisions. Following this line of research, this study further examines the effect of business cycle on earnings management. More specifically, considering whether the different business cycle will cause different probability of earnings management and different value relevance of financial information, this study uses the Panel Smooth Transition Regression Model developed by Gonz′alez, Teräsvirta and Dijk（2005）. The model is to investigate the existence of threshold effect and nonlinearity in the association between business cycle and earnings management. And the empirical results indicate there are nonlinearity and one threshold effect in the relationship between business cycle and earnings management. In the economic recession, the micro economy is declining continuously and results in less earnings management, suggesting that a typical business recession is associated with a higher probability of earnings management by writing off the inefficient operating performance. However, as the economy rebounds from recession, the managers may expect to bring news about the better business environment and corporate performance, thus higher motivation of earnings management. On the other hand, as the economy is prosperous, the managers may decrease their motivation of earnings management due to the compensation program or the stability of earnings. Overall, the results show that there is high probability of earnings management in the period of business recession.
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