State Ownership and Earnings Management around Initial Public Offerings: Evidence from China

41 Pages Posted: 15 Jan 2012 Last revised: 17 Jan 2018

See all articles by C.S. Agnes Cheng

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Jing Wang

Vanderbilt University - Owen Graduate School of Management

Steven X. Wei

Hong Kong Polytechnic University - Faculty of Business

Date Written: May 1, 2015

Abstract

This study investigates earnings management by firms around their initial public offerings (IPOs) in domestic Chinese equity markets. Using a sample of 437 IPO firms, we find that Chinese firms tend to inflate earnings around their IPOs. We also show that state-owned enterprises (SOEs) manage earnings to a lesser degree than non-state-owned enterprises (NSOEs) do around IPOs. Furthermore, using path analysis, we find that two incentive factors, CEO shareholding and accessibility to bank loans, explain 48% of the correlation between state ownership and earnings management for IPO firms. In particular, accessibility to bank loans is a more important incentive factor that leads to less earnings management for SOEs than NSOEs.

Keywords: IPO, Earnings management, Ownership type

Suggested Citation

Cheng, C.S. Agnes and Wang, Jing and Wei, Steven X., State Ownership and Earnings Management around Initial Public Offerings: Evidence from China (May 1, 2015). Journal of International Accounting Research, 14(2), 89-116. Available at SSRN: https://ssrn.com/abstract=1985507 or http://dx.doi.org/10.2139/ssrn.1985507

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Jing Wang (Contact Author)

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States

Steven X. Wei

Hong Kong Polytechnic University - Faculty of Business ( email )

Hong Kong

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