 Financial structure and earnings manipulation activities in ChinaMuhammad Kaleem Khan, Yixuan Qin and Chengsi Zhang The World Economy, 2022, vol. 45, issue 8, 2593-2621 Abstract: This study aimed to analyse the monitoring adeptness of the financial system in China, particularly in controlling earnings management activities. First, this study identifies the reasons and motivations of managers for involvement in earnings management activities. Second, this study determines whether China's financial system has developed sufficiently to be capable of establishing a strong monitoring mechanism over firms. The study compares how an equity‐based financial structure develops an efficient monitoring system with that of a bank‐based one. A panel dataset of 2997 listed Chinese firms spanning the years 1998–2015 shows that the agency issue is the main reason that firms engage in earnings management activities. Management of financially constrained firms is found to be more prudent than management of other firms because they avoid masking firm performance. The study concludes that Chinese firms are restrained from indulging in managing earnings practices owing to the overwhelming development of the financial system. Moreover, firms in capital market‐based financial structures are more inclined to avoid earnings management compared with those in bank‐based structures. Date: 2022 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:45:y:2022:i:8:p:2593-2621 Ordering information: This journal article can be ordered from Access Statistics for this article The World Economy is currently edited by David Greenaway More articles in The World Economy from Wiley Blackwell |
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