An Analysis of the Applicability of China’s Special Treatment System and Suggestions for Improvement

Abstract

In order to adapt to the securities market environment in China, the special treatment system (hereinafter referred to as ST system) was formally implemented in 1998 as a delisting system with Chinese characteristics. However, with the continuous development of earnings management, it has a great impact on the actual implementation of the special treatment system.In fact, many listed companies use earnings management to avoid delisting. Base on the relevant financial data from 2013 to 2017 of 22 special treatment listed companies that successfully lifted the delisting warning in 2016, this paper uses the modified Jones model to analyze whether there is earnings management behavior of *ST listed companies under the current ST system. This paper finds that most of the ST listed companies or *ST listed companies in the sample have earnings management behavior. In view of the current situation, this paper uses the principal component analysis method to select the representative indicators of the four financial indicators and constructs a multi indicator evaluation model, which provides exploration and suggestions for the improvement of the special treatment system.