A Review of Earnings Management in China and its Implications

9 Pages Posted: 23 May 2012

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

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Date Written: May 2012

Abstract

This paper discusses the motivations behind the earnings management of listed firms in China and provides evidence on earnings management using various accounting measures. The literature shows that earnings management occurs most often before the issue of securities or when a firm is facing the risk of being delisted. While non‐core income was widely used to measure earnings management in China, as it is easily detected, researchers are now focusing on accrual‐based models. We explore the underlying 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.

Suggested Citation

Yang, Jingjing and Chi, Jing and Young, Martin R., A Review of Earnings Management in China and its Implications (May 2012). Asian‐Pacific Economic Literature, Vol. 26, Issue 1, pp. 84-92, 2012. Available at SSRN: https://ssrn.com/abstract=2065070 or http://dx.doi.org/10.1111/j.1467-8411.2012.01334.x

Jingjing Yang

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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