A Review of Earnings Management in China and its Implications

24 Pages Posted: 8 Aug 2011 Last revised: 5 Oct 2011

See all articles by Jingjing Yang

Jingjing Yang

Guangdong University of Foreign Studies

Jing Chi

Massey University - School of Economics and Finance

Martin R. Young

Massey University - School of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 4, 2011

Abstract

This paper reviews the academic literature on earnings management in China. We discuss the motivations behind the listed firms’ earnings management, and provide empirical evidence on earnings management using various accounting measures. The literature shows that earnings management occurs most often before security issuance, or when a firm is facing the risk of delisting. While non-core income was widely used to measure earnings management in China, as it is easily detected, researchers are now focusing their attentions on accrual-based models. We then explore the real causes of earnings management in China, and conclude that the two main causes are the concentrated ownership structure, and the strong political and economic connections between government and the listed companies. We review the impact of corporate governance mechanisms and government supervision on earnings management in China. Finally, we discuss implications for the regulators and make suggestions for future research.

Keywords: Earnings management, China

JEL Classification: G30, M41

Suggested Citation

Yang, Jingjing and Chi, Jing and Young, Martin R., A Review of Earnings Management in China and its Implications (October 4, 2011). Available at SSRN: https://ssrn.com/abstract=1906478 or http://dx.doi.org/10.2139/ssrn.1906478

Jingjing Yang (Contact Author)

Guangdong University of Foreign Studies ( email )

2 Baiyun Avenue, Baiyun District
GuangZhou, Guangdong 510420
China

Jing Chi

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North,, 4442
New Zealand
+64 6 3569099 Ext. 84048 (Phone)
+64 6 350 5651 (Fax)

Martin R. Young

Massey University - School of Economics and Finance ( email )

Private Bag 11222
Palmerston North, 4442
New Zealand

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