Can third-party online sales disclosure help reduce earnings management? Evidence from China |
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| Institution: | 1. University of Nebraska, Lincoln, USA;2. DePaul University, USA;3. Texas A&M University, USA;1. Memorial University of Newfoundland, Canada;2. Stony Brook University, USA;1. School of Accountancy, Southwestern University of Finance and Economics, 555 Liutai Road, Chengdu, China;2. School of Accountancy, Shanghai University of Finance and Economics, 111 Wuchuan Road, Shanghai, China;3. Institute of Accounting and Finance, Shanghai University of Finance and Economics, 111 Wuchuan Road, Shanghai, China |
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| Abstract: | Alternative data plays an increasingly important role in investment and commodities market analysis. This study empirically investigates the effect on earnings management of disclosure of third-party online sales as a type of alternative data. We show that earnings management is reduced with the public disclosure of a firm’s third-party online sales data in a well-known Chinese financial database. Our results are robust to a series of endogeneity corrections and robustness checks. We also find that the negative association between third-party online sales disclosure and earnings management is more pronounced in firms with an opaque external information environment, weaker corporate governance, a higher proportion of online sales relative to total sales, and when sales are more likely to be the target of manipulation. Our results indicate that third-party online sales disclosure reduces earnings management by decreasing its benefits and increasing the risk of its detection. Our findings yield important implications for regulators and policy makers. |
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