EconPapers    
Economics at your fingertips  
 

Using Available‐for‐sale Securities to Smooth Earnings: Evidence from China

Ruichang Lu, Weijia He and Xiaojun Zhang

Abacus, 2023, vol. 59, issue 1, 163-196

Abstract: Utilizing a large sample of non‐financial public firms in China from 2009 to 2016, we find robust evidence that non‐financial firms smooth their earnings through realized gains and losses on available‐for‐sale (AFS) securities. This effect is more pronounced for firms with weaker internal and external corporate governance. Firms with an incentive to manipulate up their earnings are also less likely to smooth earnings through AFS securities. Moreover, firms with more accrual earnings management or real earnings management tend to smooth earnings to a greater extent through AFS securities. Firms smooth earnings only when their net income is positive or when net income is negative and the gains from AFS securities are large enough to offset negative earnings. We do not find supporting evidence for engaging in big bath earnings management through the realization of losses on AFS securities. These findings suggest that gains and losses on AFS securities allow non‐financial firms to actively smooth their earnings. Last, the accounting standards amendments in 2017 that essentially disable earnings smoothing through AFS securities increase price efficiency.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/abac.12282

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:abacus:v:59:y:2023:i:1:p:163-196

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0001-3072

Access Statistics for this article

Abacus is currently edited by G.W. Dean and S. Jones

More articles in Abacus from Accounting Foundation, University of Sydney
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2025-03-19
Handle: RePEc:bla:abacus:v:59:y:2023:i:1:p:163-196