Do firms manipulate earnings after winning public-private partnership bids? Evidence from China

Muhammad Ansar Majeed, Chao Yan and Huijie Zhong

Emerging Markets Review, 2022, vol. 51, issue PB

Abstract: We examine whether firms manipulate their reported earnings after winning investment project bids. China's adoption of the public-private partnership (PPP) provides a unique setting for our analysis. Using the PPP announcements to identify the firms participating in PPP projects, we find that firms conduct both accrual-based and real earnings management after PPP participation. Our findings survive difference-in-differences design with different matching methods. We document that PPP-participating firms have strong incentives to manipulate earnings because of abnormal administrative expenditure and greater short-term performance pressure than non-PPP-participating firms. The auditors respond by charging higher audit fees due to the increased risk. Moreover, government subsidies relieve performance pressure and decrease the likelihood of earnings management among PPP-participating firms. Overall, this study documents the unintended consequences of PPP participation.

Keywords: Corporate investment; Public-private partnership (PPP); Earnings management; Firm performance (search for similar items in EconPapers)
JEL-codes: G15 G31 H54 M41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:51:y:2022:i:pb:s1566014121000881

DOI: 10.1016/j.ememar.2021.100880

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