| Summary: | 碩士 === 元智大學 === 財務金融暨會計碩士班(會計學程) === 104 === Accounting Research and Development Foundation of the Republic of China issued Statement of Financial Accounting Standards （SFAS） No.7 “Consolidated Financial Statements” in 1985. In the meantime, an investor company was required to include its investee company as part of the reporting entity only when it controls 50% or more as criteria. To avoid being included in the consolidated entity in TSFAS 7, part of parent company is likely to reduce the voting rights just below 50% so it can exclude subsidiary from consolidated financial statements. In order to enhance the information transparency in group firms and convergence to IFRS, the SFAS No.7 was revised in that the consolidation requirement is based on the controlling nature rather than the ownership-based in end of 2004.The background of this study is based on the revision of the rules, we examine relationship between the subsidiaries excluded from consolidated statements and earnings management around the revision of SFAS No.7.
This study takes the discretionary accruals and real earnings management as the proxy variables of earnings management. We find evidence that the subsidiaries excluded from consolidated statements lead a decline in earnings management around the revision of SFAS No.7. We further find in the electronics industry, the subsidiaries excluded from consolidated statements lead a larger decline in earnings management.
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