“Keep silent and make money”: Institutional patterns of earnings management in China |
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| Authors: | Shaomin Li David D. Selover Michael Stein |
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| Affiliation: | aDepartment of Management, College of Business and Public Administration, Old Dominion University, Norfolk, VA 23529, United States;bDepartment of Economics, College of Business and Public Administration, Old Dominion University, 49th Street and Hampton Blvd., Norfolk, VA 23529, United States;cDepartment of Accounting, College of Business and Public Administration, Old Dominion University, Norfolk, VA 23529, United States |
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| Abstract: | Assessing the overall quality of Chinese financial data is important to both academic researchers and regulators. Using data from the industrial census of China, we examine the institutional pattern of the manipulation of reported profit statistics by manufacturing firms. This manipulation of profits is called “earnings management.” We find that earnings management is more pervasive in China than in mature market economies such as the U.S., and that Chinese firms appear to follow a “keep silent, make money” strategy by managing their reported earnings to zero. Specifically, we find that increased earnings management is associated with state-owned firms, firms reporting to higher levels of government, and firms in more marketized regions. |
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| Keywords: | JEL classification: M4 L21 H26 D21 C80 G30 |
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