Bank discrimination, holding bank ownership, and economic consequences: Evidence from China

This paper finds that compared with Chinese state-owned firms, non-state-owned firms have a greater propensity to hold significant ownership in commercial banks. These results are consistent with the notion that because non-state-owned firms are more likely to suffer bank discrimination for political reasons, they tend to address their financing disadvantages by building economic bonds with banks. We also find that among non-state-owned firms, those that hold significant bank ownership have lower interest expenses, and are less likely to increase cash holdings but more likely to obtain short-term loans when the government monetary policy is tight. These results suggest that the firms building economic bonds with banks can enjoy benefits such as lower financial expenses and better lending terms during difficult times. Finally, we find that non-state-owned firms with significant bank ownership have better operating performance. Overall, we find that firms can reduce discrimination through holding bank ownership.     

Political embeddedness and firms’ choices of earnings management strategies in China

We examine whether and how political embeddedness influences financial reporting quality in China by investigating how government ownership and political connections affect Chinese listed firms’ choices of earnings management strategies. The results show that state-owned enterprises (SOEs), and in particular, central SOEs, are more likely to substitute accrual-based earnings management strategies with costlier but less detectable real earnings management strategies than non-SOEs. The results also indicate that politically connected enterprises (PCEs) are more likely to employ less detectable real earnings management strategies than non-PCEs, so much so that PCEs’ total earnings management level is higher than that of non-PCEs.     

Quality of reported earnings by Chinese firms: The influence of ownership structure

This paper examines the influence of ownership structure on earnings quality of firms listed on the Chinese Stock Exchanges. We empirically test four contemporary earnings quality measures, including volatility of earnings, variability of earnings over cash flows, correlations between accruals and cash flows, and level of discretionary accruals, for 1438 firms listed on Shenzhen Stock Exchange and Shanghai Stock Exchange. We find that although state-owned firms are bigger in size and appear more profitable based on reported earnings; privately-owned firms, foreign-owned firms and society-owned firms outperform the state-controlled firms in earnings quality; and foreign-owned firms have the highest earnings quality among all types of ownership groups. We find that there is not much difference in earnings quality between collectively-owned firms and state-owned firms and employee-owned firms exercise least discretion in earnings management. The findings in particular will have direct policy implications for the China Securities Regulatory Committee (CSRC).     

政府控制对审计质量的双重影响

本文从上市公司和会计事务所的产权性质与区域属性的角度,研究了政府控制对审计质量的影响。研究发现,国有企业和本地会计事务所审计的公司的盈余管理水平较低;而较低的盈余管理水平能够降低审计师出具非标意见的概率;同时,国有企业在控制了盈余管理水平的情况下,其得到非标意见的概率相对要低。研究结果表明,政府控制对审计质量的影响具有双重性:一方面,政府控制增强了会计事务所的"本土知识"优势和抵御公司压力的能力,进而提高了公司报表质量;另一方面,政府控制依据它对审计市场的控制降低了出具非标意见的概率,损害了审计质量。     

产权性质、制度环境与内部控制

内部控制是近年来国内外监管部门、实务界和学术界关注的热点与前沿问题。本文研究我国上市公司最终控制人的产权性质与地区制度环境对公司内部控制质量的影响。利用厦门大学内控课题组(2010)构建的2007-2009年我国上市公司内部控制指数,本文主要发现:首先,相比于中央政府控制的公司,地方政府控制的公司内部控制质量相对较差,而非政府控制的公司内部控制质量与中央政府控制的公司之间则没有明显差异;其次,上市公司所在地区的市场化程度越高或政府对经济的干预程度越低,公司的内部控制质量越高,尤其是对于地方政府控制和非政府控制的上市公司,并且,良好的外部制度环境有助于缩小地方政府控制和非政府控制公司的内部控制与中央政府控制公司之间的差距。本文的研究结果对相关主管部门及监管机构具有一定的政策启示意义。     

An empirical study of voluntary transfer pricing disclosures in China

This paper empirically investigates the factors that affect the management’s voluntary disclosures of the transfer pricing details of related-party transactions. Using Chinese data from 2004 and 2005, we hypothesize and find that firms that make voluntary disclosures of the pricing methods of related-party transactions are negatively associated with (i) a higher level of earnings management (as captured by abnormal related-party transactions) and (ii) its underlying incentives (as captured by the management’s performance-linked bonuses and the firm’s incentives to achieve earnings targets); further, they are positively associated with (i) a higher percentage of independent directors and (ii) a higher percentage of government ownership. Overall, our findings suggest that earnings management and its incentives, board composition, and ownership structure significantly influence the voluntary disclosure decisions of managers.     

Do media connections help? Evidence from IPO pricing in China

This study examines how social connections between media executives and firms affect initial public offering (IPO) pricing using manually collected Chinese data. We find media-connected firms receive more frequent and more positive coverage than their unconnected peers, resulting in reduced IPO underpricing. However, media-connected firms have worse post-IPO market performance. Although media-connected firms have better pre-IPO accounting performance, they conduct more earnings management under the cover provided by their connected media. Additional results show that the negative effect of media connections on IPO underpricing is more pronounced for media that are not controlled by the central government and are based in the same city as the firm. It is also more pronounced for firms with less institutional ownership and non-state-owned enterprises. Our results remain valid after various robustness tests, such as alternative proxies for IPO underpricing, eliminating alternative hypotheses, matching analysis, instrumental variable analysis, as well as placebo tests. Collectively, our findings suggest that media connections compromise IPO pricing efficiency.     

Is cross-listing a panacea for improving earnings quality? The case of H- and B-share firms in China

This study examines whether cross-listed Chinese H- and B-share firms exhibit higher earnings quality relative to non-cross-listed A-share firms based on seven accounting- and market-based earnings quality attributes, including accrual quality, persistence, predictability, smoothness, conservatism, timeliness and value relevance. We find that earnings quality does not differ between cross-listed and non-cross listed firms in terms of accrual quality, timeliness and value relevance, and that H- and B-share firms report earnings with lower quality in terms of persistence and predictability. We also find that the B-firms report smoother earnings, while the H-firms report more conservative earnings. The results of a battery of cross-sectional, endogeneity and sensitivity analyses either confirm our primary findings of no earnings quality difference or reveal lower earnings quality for cross-listed firms than for non-cross-listed firms. Considering that cross-listing in China is primarily driven by government decisions, our findings suggest that, without proper incentives, cross-listing is not likely to be a panacea for higher quality financial reporting.     

股权性质、环境不确定性与会计信息的治理效应

已有研究发现会计信息具有治理效应,但没有考虑会计信息治理效应所依赖的经理人侵占动机及外部环境所提供的机会;已有研究虽然考察了国有股权的治理效应,但由于没有考虑经理人谋取私利的可能性而使结论具有偏差。本文研究了股权性质、环境不确定性与会计信息质量对代理成本的交互作用。研究结果表明,低质量的会计信息不仅增加管理层利用公司资源的自利行为,而且还降低公司资产的使用效率,但会计信息的治理作用仅在环境不确定性高的公司中存在,同时,相对于非国有控股公司,会计信息质量在国有控股公司的治理作用较小。研究结果还表明,只有在环境不确定性较高且会计信息质量较低的情况下,国有控股公司的代理效率高于非国有控股公司。本文不仅验证了国有股权和环境不确定性对会计信息治理效应的影响,也验证了环境不确定性和会计信息质量对国有股权治理效应的影响。     

Corporate social responsibility and earnings quality: Evidence from China

We examine the association between corporate social responsibility (CSR) and earnings quality using CSR ranking data from Rankins (RKS) and four measures of earnings quality. Using a sample of 2580 Chinese listed firms for fiscal years 2009–2015, with 14,807 firm-year observations, we find that CSR firms and those with higher CSR ratings are less likely to engage in earnings management than non-CSR firms and those with lower CSR ratings, and their earnings are more persistent and more accurately predict future cash flows from operations. State ownership and marketization moderate the relationship between CSR disclosures and earnings quality.     

Ownership structure and real earnings management: Evidence from China

Although ownership structure is fundamental to corporate accounting behaviors, the current literature provides scarce evidence about the governance effect of ownership structure on real earnings management (REM). We seek to address this issue by using a sample of Chinese listed firms which are likely to engage in earnings management during 2003–2014. We find that Chinese firms with more influential largest shareholders are more prone to REM; and that firms with state control and managerial ownership are less likely to engage in REM. We further find that there exists a joint and sequential relationship between REM and accrual-based earnings management in China. Our findings are robust to different variable measurements, samples and regression models. Our study contributes to the research on the relationship between ownership structure and earnings management and contributes to the understanding of REM in emerging economies. Our findings have significant implications for shareholders, analysts and regulators, and are important and relevant given that MSCI decides to include China mainland stocks in its indexes starting 2018.     

Government ownership and exposure to political uncertainty: Evidence from China

The government of China started its anti-corruption campaign in December 2012. Since then, more than 600 government officials have been investigated. We regard the investigations involving senior officials as signals of increased political uncertainty. Focusing on these events, we study how firms’ exposure to political uncertainty varies with government ownership. It is found that the stock performance of private firms is worse on the event days than in normal times, whereas state-owned enterprises (SOEs) suffer less from the events. Moreover, the event-day effects are not quickly reversed in the post-event periods. Among SOEs, the negative impact of the events also decreases with government ownership. The evidence indicates that government ownership mitigates firms’ exposure to political uncertainty.     

The effects of trading rights and ownership structures on the informativeness of accounting earnings: Evidence from China’ split share structure reform

This paper examines how the removal of trading restrictions and ownership structures affect earnings informativeness by investigating the changes in the earnings-return relation around China’s split share structure reform. I find the reform has a negative impact on the relationship between controlling shareholders’ ownership and earnings informativeness, which is consistent with the idea that the removal of trading restrictions gives controlling shareholders incentives to influence the stock price through managing earnings. I also find that earnings informativeness decreases with the reduction in controlling shareholders’ ownership. This dilution effect is more significant for firms with non-state controlling shareholders or with controlling shareholders that are not monitored by other large shareholders. The results are consistent with the notion that controlling shareholders provide less informative earnings in response to the dilution of their ownership to avoid the constraints arising from the increased monitoring by outside investors.     

Industry tournament incentives and the speed of leverage adjustments: Evidence from China

This study investigates the effect of industry tournament incentives on the speed of leverage adjustments in China. Using a large sample of Chinese listed firms from 2007 to 2017, we find that industry tournament incentives increase the speed of leverage adjustments towards the target leverage. This effect is attenuated for firms with strong monitoring and for firms with CEOs who are near-retirement or brand new. Moreover, the positive association between industry tournament incentives and the speed of leverage adjustments towards the target level is less pronounced for state-owned enterprises compared to non-state-owned enterprises. Overall, our study indicates that industry tournament incentive is an important determinant of capital structure dynamics.     

产权性质、CFO背景特征与内部控制质量

基于高层梯队理论和社会网络理论,以2008-2015年我国A股上市公司为样本,实证考察CFO背景特征对公司内部控制质量的影响。研究发现：CFO的年龄越大、任期越长,内部控制质量越低;CFO的学历越高,内部控制质量越高;女性CFO较男性CFO在内部控制建设方面存在相对劣势;CFO外部兼职有助于提升内部控制质量。进一步研究发现：在国有企业和非国有企业中,CFO背景特征对内部控制质量的影响存在显著的差异。     

Are insiders equal? Evidence from earnings management in closely held East Asian firms

In analyzing newly collected data on the ultimate ownership structure of publicly traded firms in nine East Asian economies, we contribute to international accounting research by providing evidence on earnings management in insider-controlled firms in this region. We find that family-controlled firms engage in less (more) accrual-based (real) earnings management than other insider-controlled firms. Our analysis suggests that controlling families, unlike other types of ultimate owners, tend to substitute real earnings management for accrual-based earnings management. To help empirically clarify the role that two incentives (entrenchment versus signaling) play in driving the substitution between real and accruals-based earnings management, we examine their valuation impact and find that both types negatively affect the future valuation of family firms. In another set of results consistent with expectations, we document that country-level investor protection and firm external financing demand shape the practice of earnings management in family-controlled firms.     

Government integrity and corporate investment efficiency

We explore the relation between government integrity and firms’ investment efficiency in the context of China’s deepening reforms and its strengthening the social credit system. We find that government integrity is positively associated with the investment efficiency of listed companies in China. Government integrity is negatively related to corporate underinvestment, but insignificantly related to corporate overinvestment. Higher government integrity reduces underinvestment in non-state-owned firms, but this relation is not significant in state-owned firms. Furthermore, we find that the negative relation between government integrity and underinvestment is only significant for firms in industries that receive supportive government policies. This study enriches research on corporate investment by adopting the perspective of government integrity, and supplements the literature on government integrity and its economic consequences. Our study also provides micro-level empirical evidence that strengthening government integrity will promote the economic transformation of China.     

Heterogeneity of Funds and Information Disclosure: Evidence

Institutional investors, especially public funds, play an important role in governing listed firms as they grow in Chinese stock markets. We classify each fund as “dedicated,” “transient,” or “mixed,” according to the concentration, turnover, and profit sensitivity of their stock holdings. We find that listed firms with more shares held by dedicated funds have a higher disclosure quality, while firms with more shares held by transient funds have a lower disclosure quality. These findings are consistent in different model settings. In addition, dedicated funds improve the disclosure quality of non-state-owned enterprises more than state-owned enterprises. Dedicated funds can benefit from the lower debt-financing cost and higher stock liquidity of firms with better disclosure quality.     

Empirical Investigation of the Ability of Sensitivity of Stock Prices to Earnings News in Predicting Earnings Management and Management Forecast Errors

This paper presents an evidence that a firm’s Sensitivity of Stock Price to Earnings News (SSPEN), as measured by surplus stock demand over its supply, affects on incentives to manage earnings and, in turn, Management Forecast Errors (MFE). In particular, we find a tendency for firms rated a Sell (Buy) to engage more (less) frequently in extreme, income-decreasing Earnings Management (EM), indicating that they have relatively stronger (weaker) incentives to create accounting reserves especially in the form of earnings baths than other firms. In contrast, firms rated a Buy (Sell) are more (less) likely to engage in earnings management that leaves reported earnings equal to or slightly higher than management forecasts. The result of empirical evidence from Iranian firms in Tehran Stock Exchange (TSE) showing the existence of a meaningful relationship between SSPEN and EM. Generally, SSPEN can be used to predict EM and Forecast Errors (FEs).     

State ownership and abnormal accruals in highly-valued firms: Evidence from China

We examine how state ownership affects Chinese firms’ abnormal accruals during a period of high valuation. We find the magnitude of abnormal accruals first increases for up to three years of high valuation, and then reduces after the fourth year. We also find that managers turn to using abnormal real transactions after four consecutive years of high valuation. Next, we examine whether the degree of abnormal accruals in highly-valued firms differs between state-owned enterprises (SOEs) and non-NSOEs. Supporting the view that SOE managers have less incentive to sustain high stock prices, we find evidence that highly-valued SOEs have significantly lower levels of abnormal accruals than highly-valued NSOEs during the period of high valuation. Our findings contribute to the literature on the cross-sectional variation in the relation between managers’ pressure to sustain high stock prices and their accounting choices in firms with different ownership structures.