Jingjing Yang, PhD Candidate, Massey University, New Zealand and Lecturer, Jiangxi Normal University, China, Jing Chi, Senior Lecturer, Massey University, New Zealand, and Martin Young, Professor in Finance, Massey University, New Zealand.
A review of earnings management in China and its implications
Article first published online: 22 MAY 2012
© 2012 Crawford School of Public Policy, The Australian National University and Blackwell Publishing Asia Pty Ltd
Asian-Pacific Economic Literature
Volume 26, Issue 1, pages 84–92, May 2012
How to Cite
Yang, J., Chi, J. and Young, M. (2012), A review of earnings management in China and its implications. Asian-Pacific Economic Literature, 26: 84–92. doi: 10.1111/j.1467-8411.2012.01334.x
- Issue published online: 22 MAY 2012
- Article first published online: 22 MAY 2012
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.