Substitution, availability and preferences in earnings management: empirical evidence from China |
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Authors: | A Szczesny A Lenk T Huang |
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Institution: | (1) Chair for Controlling and Auditing, Goethe-University Frankfurt, Frankfurt am Main, Germany;(2) School of Accounting, Shandong Economic University, Jinan, Shandong, China |
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Abstract: | Our study analyzes financial reporting data on earnings management from a rapidly changing economy—the PRC. Some Chinese regulatory
reforms allow for an easy identification of incentives to engage in both accounting and real earnings management activities.
In addition, straightforward economic reasoning suggests that firms incur different costs for pursuing these strategies, which
leads to the possibility of a hierarchy or ranking of different earnings management practices. Our results show that accounting
and real earnings management activities were significantly higher for firms in danger of missing a regulation imposed performance
threshold. After controlling for the availability of the different instruments, our results provide weak evidence for a ranking
of different earnings management activities.
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Keywords: | Real earnings management Accounting earnings management Regulatory incentives China Securities Regulatory Commission |
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