Abstract: The meaning of earnings management is analysed,and its theoretical foundation is annotated from contracts theory and information economics.The meaning of P/E ratio is expatiated according to  Edwards-Bell-Ohlson (EBO) model,and  the relation of P/E ratio and the achievement of company is analysed.The relation of the change of P/E ratio and earnings management is analysed from the change of P/E ratio,the growth of company and the possibly false appraised value of company.Finally,some suggestions to keep away the earnings management are put forward.

Key words: earnings management, adverse selection, moral hazard, P/E ratio