A Game of Accounting Numbers in Asset Pricing: Evidence from the Privatization of State-Owned Enterprises

43 Pages Posted: 26 Aug 2011

See all articles by Charles J. P. Chen

Charles J. P. Chen

China Europe International Business School (CEIBS)

Jun Du

Hong Kong Polytechnic University - Faculty of Business

Xijia Su

China Europe International Business School (CEIBS)

Date Written: August 25, 2011

Abstract

This study examines a public policy issue: whether government officials engage in earnings management to collude with private investors in the privatization of state-owned enterprises (SOEs). We find that the managers of listed Chinese SOEs, who are de facto bureaucrats, employ income-decreasing earnings management to reduce the price of shares to be sold to private investors. We also find that more aggressive income-decreasing earnings management is associated with a lower CEO turnover rate in the year following the privatization. These findings highlight the need to consider the opportunism of government agents when accounting information is used in redistribution of state assets.

Keywords: Earnings management, SOEs, Privatization, Rent-seeking

JEL Classification: G12, G18, G34, G38

Suggested Citation

Chen, Charles J. P. and Du, Jun and Su, Xijia, A Game of Accounting Numbers in Asset Pricing: Evidence from the Privatization of State-Owned Enterprises (August 25, 2011). Available at SSRN: https://ssrn.com/abstract=1917302 or http://dx.doi.org/10.2139/ssrn.1917302

Charles J. P. Chen

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Jun Du (Contact Author)

Hong Kong Polytechnic University - Faculty of Business ( email )

Hong Kong

Xijia Su

China Europe International Business School (CEIBS) ( email )

699 Hongfeng Road, Pudong
Shanghai 201206
China

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