【正文】 ehlen 1999, ). Management pensation contracts are ones that provide managers incentives to act in the interest of pany’s shareholders. It is similar to(the same mechanism as) manager’s bonus scheme when pany’s profit falls within the range between the bogey and the cap as stated above,(.) which means(In other words), under the management pensation contract(under this kind of contracts), managers of panies(corporations) have stronger motivations to use “misreporting” methods and real actions to manage(maintain) pany’s earnings upward for the sake of their earningbased bonus awards. In a word, management pensation contract is a(the) factor that motivates managers to manage(control) earnings.The second type of contract within contracting motivation is lending contract (Scott 2009, ). In the(delete) lending contracts, there are always covenants over the managers imposed by shareholders in order to protect the shareholders’ personal interest against managers’ actions not act in the (which doesn’t seek) interests of shareholders, such as the restriction on additional borrowing, maintain the minimum amount of working capital in the firm. Given that lending contract violation will result in(induce) a great cost, and will also lead to a restriction on manager’s action in(on) operating the firm (Scott 2009, ),(.) Managers of the panies that(which are) close to violating the lending contracts have motivations to manage(hold) earnings upward(uplift) or smooth the ine to assure the(all) pliances within the contracts, with the aim of reducing the possibility or delay of the violation of lending contract. Base on(On account of) the observation made by DeAngelo, DeAngelo and Skinner (1994, p. 115), in the sample of 76 troubled panies, 29 of which bind lending contract used ineincreasing accruals or changed accounting policy to increase panies’ earnings since they were close to violated(violate) the contract. All these real evidences demonstrated that, high costs that associate with the violation of lending contract will motivate managers to use ineincreasing account to manage earnings upward.Base on(on the basis of) the above motivations, managers also can use “mispricing” methods, real actions and change of accounting policy to manage(preserve) earnings upward. For example, for(with) the change of accounting method, pany can make a use of the difference between taxation purpose depreciation amount and the accounting purpose depreciation amount to earn an ine(a) tax ine. For the real actions, panies thus can alter the timing of its financial transactions, such as defer the advertising expenditures. Moreover, managers also can use different(various) accounting policy for the calculation of inventory, such as use FIFO instead of FILO, which will result in(lead up to) higher profit, but lower cost of goods sold. But(nevertheless, ) for panies that(which are) motivated to have smoothing ine, managers can choose to hoard this year’s profit to offset next years loss, so that with a smoothing ine, panies are more likely to meet their lending covenant. Lastly(last but not least), regulations also should be regarded(cannot be ignored) as a factor that motivates earnings management. As we all know, regulations are rules and policies that used to control the conduct of people who it(they) applies to, and in business cycle, these regulations are applied to mercial entities,(.)so(accordingly,) with no doubt, managers of such entities are motivated to use(utilize) earnings management to circumvent some regulations. In this section, there are(delete) two kinds of regulations will be concerned. The first one is industry regulations (Healy amp。 Walhen 1999, ). In the entire economy, many industries’ accounting data are regulated by such a(respective) regulations, as examples according to the statement of Healy amp。 Walhen (1999, p. 377), banking regulations require banks to meet the regulatory capital adequacy ratio standards。 insurance regulations require insurers to maintain a minimum financial health, while utilities are only allowed to earn a normal profit under the required standard. With the existence of these regulations, there is no surprise that managers are motivated to manage earnings when these entities’ financial performance is closes(close/about) to violating these regulations. For instance, for banks whose capital adequacy ratio are close to the minimum standard requirement and insurance panies who performed poorly, managers will have motivation to overstate its earnings, net ine and equity, or even understate its loss reserves by recognizing revenue earlier, and deferring recognizing financial expenditures and tax expenses. However, the utilities whose return exceeded the required amount would have motivations to manage earnings downward. By doing this, their reported financial performance still can meet the standard requirement。 and avoid the violation of such regulations. According to Collins, Shackelford and Wahlen (1995) observations of real banks, two thirds of the sample banks managed earnings upward, overstated the loan loss allowance and understated the loan loss provisions during the year with relatively low capital ratio (Collins et al 1995, cited in Healy amp。 Wahlen 1999, p. 378). Adiel (1996, p. 228230) also stated(claimed) that base on(in vi