Private vs State Ownership and Earnings Management: Evidence from Chinese Listed Companies

16 Pages Posted: 16 Mar 2007

See all articles by Yuan Ding

Yuan Ding

China Europe International Business School (CEIBS)

Hua Zhang

The Chinese University of Hong Kong (CUHK) - Department of Finance

Junxi Zhang

The University of Hong Kong - School of Economics and Finance; National University of Singapore (NUS) - Department of Economics

Abstract

In this study, we investigate the role played by a firm's ownership structure in earnings management, with reference to the Chinese capital market. We measure the impacts of both ownership concentration and different ownership types, specifically the difference between the state as blockholder and private blockholders.

Analysing 273 privately-owned and state-owned Chinese companies listed in 2002, we establish a link between ownership structure and firms' earnings management practices. Our results show that the relationship between earnings management measures and ownership concentration exhibits a statistically significant non-linear, inverted U-shape pattern known as the "entrenchment versus alignment" effect. It is clear that privately-owned listed companies tend to maximise their accounting earnings more. However, the entrenchment effect of ownership concentration on earnings management is weaker in privately-owned listed firms than in state-owned listed firms. Our study also confirms that when a firm manages its earnings, it tends to do so through both operating-related accrual mechanisms and non-operating transactions with related parties.

Suggested Citation

Ding, Yuan and Zhang, Hua and Zhang, Junxi Jack, Private vs State Ownership and Earnings Management: Evidence from Chinese Listed Companies. Corporate Governance: An International Review, Vol. 15, No. 2, pp. 223-238, March 2007, Available at SSRN: https://ssrn.com/abstract=972520 or http://dx.doi.org/10.1111/j.1467-8683.2007.00556.x

Yuan Ding (Contact Author)

China Europe International Business School (CEIBS) ( email )

699, Hongfeng Road
Shanghai 201206, Shanghai 201206
China

Hua Zhang

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

Junxi Jack Zhang

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
(852) 2859-2192 (Phone)
(852) 2548-1152 (Fax)

National University of Singapore (NUS) - Department of Economics ( email )

10 Kent Ridge Crescent
Singapore 119260
Republic of Singapore

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