Do State Enterprises Manage Earnings More than Privately Owned Firms? The Case of China

19 Pages Posted: 13 Oct 2011

See all articles by Liu Wang

Liu Wang

Providence College - School of Business

Kenneth Yung

Old Dominion University - Finance

Date Written: September/October 2011

Abstract

This paper examines the impact of state ownership on earnings management. In contrast with the conventional belief that state ownership is the root of corporate inefficiency, we find lower levels of earnings management among state-owned enterprises than privately-owned firms in China even after controlling for the effect of tunneling. Further investigation suggests that the protection of state enterprises by the government might have played an important role in mitigating the pressure on managers to manipulate firm-specific information. Moreover, we find that the divergence in earnings quality between state-owned and privately-owned firms becomes less evident as the economy becomes more and more market driven.

Keywords: state ownership, earnings management, discretionary accruals, accruals quality, market liberalization, China

Suggested Citation

Wang, Liu and Yung, Kenneth, Do State Enterprises Manage Earnings More than Privately Owned Firms? The Case of China (September/October 2011). Journal of Business Finance & Accounting, Vol. 38, Issue 7‐8, pp. 794-812, 2011. Available at SSRN: https://ssrn.com/abstract=1943365 or http://dx.doi.org/10.1111/j.1468-5957.2011.02254.x

Liu Wang

Providence College - School of Business ( email )

Department of Finance, School of Business
Providence College
Providence, RI 02918
United States
401-865-1883 (Phone)

Kenneth Yung

Old Dominion University - Finance ( email )

School of Business and Public Administration
Norfolk, VA 23529-0222
United States
757-683-3573 (Phone)

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