Do firms manipulate earnings after winning public-private partnership bids? Evidence from China |
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| Institution: | 1. International Business School, Zhejiang Gongshang University, No.18 Xuezheng Street, Xiasha, Hangzhou 310018, China;2. School of Accounting, Zhongnan University of Economics and Law, 182# Nanhu Avenue, East Lake High-tech Development Zone, Wuhan 430073, China;1. Assistant Professor, Department of Economics and Finance, Birla Institute of Technology and Science, Pilani, Hyderabad Campus, India;1. School of Public Administration, Southwest Jiaotong University, Chengdu, China;2. School of Finance, Shandong University of Finance and Economics, Jinan, China;3. Solbridge International School of Business, Daejeon, South Korea;1. Xi''an Jiaotong University, China;2. Shanghai University of International Business and Economics, China;1. School of Public Finance and Taxation, Southwestern University of Finance and Economics, China;2. Research Institute of Economics and Management, Southwestern University of Finance and Economics, China |
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| Abstract: | We examine whether firms manipulate their reported earnings after winning investment project bids. China's adoption of the public-private partnership (PPP) provides a unique setting for our analysis. Using the PPP announcements to identify the firms participating in PPP projects, we find that firms conduct both accrual-based and real earnings management after PPP participation. Our findings survive difference-in-differences design with different matching methods. We document that PPP-participating firms have strong incentives to manipulate earnings because of abnormal administrative expenditure and greater short-term performance pressure than non-PPP-participating firms. The auditors respond by charging higher audit fees due to the increased risk. Moreover, government subsidies relieve performance pressure and decrease the likelihood of earnings management among PPP-participating firms. Overall, this study documents the unintended consequences of PPP participation. |
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