Earnings management in China: an exploratory study

Noronha, Carlos; Yun, Zeng; Vinten, Gerald

doi:10.1108/02686900810864318

Cited by 49 publications

(52 citation statements)

References 24 publications

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“…However, the fact is that reported earnings, which are based on standards, do not reflect the true earnings of the companies, which are based on quality. This is because managers may be involved in earnings manipulations in order to earn bonuses, obtain compensation and enhance their corporate image (Burgstahler & Dichev, 1997;Noronha, Zeng, & Vinten, 2008;Schipper, 1989). In addition, there are many other reasons why and how managers manipulate, such as capital market pressure, managerial incentives, political connections, building credibility with the capital market, maintaining or increasing stock prices, improving the external reputation of the management team, to convey future growth prospects and unrealistic forecasting of revenues.…”

Section: Background Of the Studymentioning

confidence: 99%

The Impact of Earnings Quality on the Stock Returns of Listed Manufacturing Companies in the Colombo Stock Exchange

Wijesinghe

Kehelwalatenna

2017

Colombo Bus. J

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The earnings of a company is a very important indicator of firm performance, since it communicates information about the value creating ability of the company to its stakeholders. It is also considered a determinant of the stock market performance of the company. However, the possibility for managers to manipulate the true earnings of a company erodes the importance of using recorded earnings information in financial statements for decision making. Earnings quality could be measured using different proxy measures, varying from traditional accrual based measures to recent real earnings based measures. The earnings quality literature contains a plethora of evidence on the impact of earnings quality measured through accrual based measures on stock returns but it does not have as much evidence on the same impact where earnings quality is measured through real earnings. Further, the literature does not have a comparative study on how different earnings quality measures provide different results in the estimation of the impact of earnings quality on stock returns. Empirical evidence on the same relationship using data from the Sri Lankan context is virtually absent in the extant literature. In this milieu, the present study examines the impact of earnings quality measured through both accrual based measures and real earnings measures on stock returns of listed manufacturing companies in Sri Lanka during the period of 2010 to 2015. The findings of the study reveal that there is no significant positive impact of earnings quality on stock returns of the firms selected for the study. This suggests that earnings quality information of the selected firms fails to win investor trust when investors make their decisions. Perhaps this may be due to the fact that

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Section: Background Of the Studymentioning

confidence: 99%

The Impact of Earnings Quality on the Stock Returns of Listed Manufacturing Companies in the Colombo Stock Exchange

Wijesinghe

Kehelwalatenna

2017

Colombo Bus. J

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“…Practitioners and regulators mostly believe that earnings management is prevalent and unacceptable. On the other hand, academicians are reluctant to accept that providers of financial information deliberately utilize earnings management (Noronha, 2008). According to Dechow and Skinner (2000), academicians are mostly vague in making statements about earnings management.…”

Section: Introduction and Previous Researchmentioning

confidence: 99%

The Impact of Earnings Management on the Value Relevance of Earnings: Empirical Evidence From Turkey

Altıntaş¹,

Sarı²,

Otluoğlu³

2017

jisr

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This empirical study focus on demonstrating the relation between of earnings and stock returns by using data from Istanbul Stock Exchange of Turkey (Borsa Istanbul-BIST). This study analyzes the presence of earnings management practices by using financial information of the Turkish listed manufacturing companies. For this purpose, it was tested that low performance companies are prone to apply income increase practices than high performance companies. It was first approved that companies with low performance employ these practices. Thereafter it was examined if these earnings management practices decrease the value relevance of earnings. To test the hypothesis a model is created to present the relation between reported earnings and stock returns. Our findings display that low performance companies tend to increase their earnings so that they can hide their low performance. Our results point out that there is significant and positive relationship between earnings and market adjusted stock returns for whole sample, however there is no significant difference between adjusted market returns of high and low performance companies. In the literature, earnings management and value relevance studies are mostly based on US data. This study is the first paper that examines the relationship between earnings management, value relevance and financial performance in Turkish manufacturing companies.

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“…Chinese firms are also striving to improve their corporate governance. In a research study that explored earnings management in China, Noronha et al (2008) noted that a sound framework of corporate governance has become a top priority in the Chinese government's agenda. Thus, an impetus for improved corporate governance can encourage the demand for higher quality audits and improve financial reporting quality in China, as the SOX legislation is meant to do in the United States.…”

Section: Reported Earnings and Measures Of Audit Qualitymentioning

confidence: 99%

“…Both of these practices have the potential to influence the ethics-related considerations that may face auditors in reporting client performance (Seligman, 1999;Dai et al, 2000;Islamand & Gowing, 2003). Due to these differences in business association and ownership structure, larger and smaller firms have different earnings management behaviors (Noronha, 2008). We would expect to see Chinese firms with different sizes exhibit accounting conservatism differently in order to make their company's earnings, and therefore their stock price, less volatile and more attractive to investors.…”

Section: Introductionmentioning

confidence: 99%

The Effect of Client Importance and Auditor Tenure on Accounting Conservatism: Evidence from Chinese Companies

Yu¹,

Lenard²

2012

IBR

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The concern over accounting regulation has resulted in studies of auditor independence and audit quality, as measured by auditor tenure, accounting conservatism, and the type of audit firm the client employs (Big 4 or non-Big 4).In this study, we continue the line of research on conservatism and auditor tenure by examining whether accounting conservatism is related to auditor tenure for Chinese firms. We extend the studies by Jenkins and Velury (2008) and Li (2010) in order to examine Chinese firms that have non-Big 4 auditors, and we investigate whether the association exists for the most important and least important clients of these audit firms. Our findings indicate that least important clients employ more conservative accounting techniques as auditor tenure increases. For the most important clients, there is less conservatism, compared to the least important clients, in the early years of the auditor's tenure. Our study provides more information about the regulatory issue of mandatory audit firm rotation because our results suggest that mandatory auditor rotation may have an adverse effect on the least important clients of these Chinese audit firms.

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Earnings management in China: an exploratory study

Cited by 49 publications

References 24 publications

The Impact of Earnings Quality on the Stock Returns of Listed Manufacturing Companies in the Colombo Stock Exchange

The Impact of Earnings Quality on the Stock Returns of Listed Manufacturing Companies in the Colombo Stock Exchange

The Impact of Earnings Management on the Value Relevance of Earnings: Empirical Evidence From Turkey

The Effect of Client Importance and Auditor Tenure on Accounting Conservatism: Evidence from Chinese Companies

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