Earnings management by top Chinese listed firms in response to the global financial crisis
International Journal of Accounting & Information Management
ISSN: 1834-7649
Article publication date: 1 August 2016
Abstract
Purpose
The main aim of this study was to examine the earnings management behaviours, including both accrual-based and cash flow-based earnings management, of Chinese firms during the Global Financial Crisis (GFC).
Design/methodology/approach
A data set of 1,392 firm-year observations derived from a large sample of China's top listed firms (based on total assets) was constructed and investigated via univariate and ordinary least squares regression analyses.
Findings
Two distinct conclusions can be drawn from the results of the study. First, the top Chinese listed firms did engage in earnings management, as indicated by comparisons of the means of the absolute values of both accrual-based and cash flow-based earnings management indicators in the periods before and after 2008 when the GFC started. Second, investigation of earnings management directions revealed that in response to the GFC, the firms from construction-related industries and the airline industry manipulated earnings upwards through either accrual-based and/or cash flow-based earnings management activities. On the other hand, firms in the household durables industry engaged in earnings-reducing activities. These findings reflect the effect of the stimulus package launched by the Chinese Government in an effort to combat the GFC. In addition, the results indicate that firm characteristics such as size, leverage, profitability and growth affected the earnings management behaviours of the firms analysed in the study.
Originality/value
The empirically derived findings of this study contribute to the literature pertaining to the effects of the GFC on earnings management practices in China, which has remained relatively scant to date.
Keywords
Acknowledgements
We gratefully acknowledge the constructive and valuable comments and suggestions from Ding Yuan, Kamran Ahmed, Rajiv D. Banker, Jacqueline Christensen, Jan Hollindale, Joanna Ho, two anonymous reviewers and participants at 2011 Finance and Corporate Governance Conference in Melbourne and the 2013 Asian-Pacific Conference on International Accounting Issues. All remaining errors are our own.
Citation
Xu, G.(L). and Ji, X. (2016), "Earnings management by top Chinese listed firms in response to the global financial crisis", International Journal of Accounting & Information Management, Vol. 24 No. 3, pp. 226-251. https://doi.org/10.1108/IJAIM-06-2015-0034
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited