Financial Reporting and Disclosure Practices in China

Forthcoming (with online appendix), Journal of Accounting and Economics

67 Pages Posted: 19 Apr 2023 Last revised: 7 Sep 2023

See all articles by Hai Lu

Hai Lu

University of Toronto - Rotman School of Management

Jee-Eun Shin

University of Toronto - Rotman School of Management

Mingyue Zhang

University of Waterloo - School of Accounting and Finance

Date Written: March 31, 2023

Abstract

We study financial reporting and disclosure practices in China using survey methods similar to prior studies of U.S. firms (i.e., Graham, Harvey, and Rajgopal, 2005; Dichev, Graham, Harvey, and Rajgopal, 2013). Comparing earnings features, motives to manage and smooth earnings, and voluntary disclosure practices between the two countries, we reveal three major differences. First, Chinese firms exhibit a stronger preference for predictive, relative to verifiable, attributes of earnings that can signal stable firm performance to their stakeholders. Second, smooth earnings are desired by various stakeholders and can be achieved through coordination among connected stakeholders, which is conceptually different from earnings management. Third, Chinese firms consider public disclosure as less relevant in the reduction of the cost of capital. In addition, Chinese firms do not have a bias towards conservative reporting. We explain and reconcile these differences as resulting from some unique institutional features of China. Our study provides novel field evidence that contributes to, expands, and directly corroborates existing empirical studies.

Keywords: Financial Reporting, Disclosure, Information Quality, Field Study, China

JEL Classification: G10, G18, M41, M48, N25, P52

Suggested Citation

Lu, Hai and Shin, Jee-Eun and Zhang, Mingyue, Financial Reporting and Disclosure Practices in China (March 31, 2023). Forthcoming (with online appendix), Journal of Accounting and Economics , Available at SSRN: https://ssrn.com/abstract=4413616

Hai Lu

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Jee-Eun Shin

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Mingyue Zhang (Contact Author)

University of Waterloo - School of Accounting and Finance

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada

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