Does external finance pressure affect corporate disclosure of Chinese non-state-owned enterprises?

Youchao Tan, Zhenmei Zhu, Cheng Zeng and Minghua Gao

International Review of Financial Analysis, 2014, vol. 36, issue C, 212-222

Abstract: We examine whether external finance pressure influences information disclosure of Chinese non-state-owned enterprises (NSOEs), which are often entrepreneurial firms. Existing Chinese stock exchange regulations stipulate that firms need to meet certain earnings performance criteria to qualify for rights issue or avoid delisting. These regulatory criteria create pressures for firms in need for external equity financing to manipulate earnings in order to meet and beat the performance targets. To examine this, we exploit an exogenous event of Chinese accounting standards change in 2007, when firms are given greater accounting disclosure discretion. Following this change, we find evidence consistent with increased earnings manipulation among NSOEs that barely meet these performance targets. This effect is also more pronounced among such NSOEs with weaker political connections, which increases their dependence on the capital market for external financing. Our findings have policy implications for the financing of NSOEs and entrepreneurial firms in emerging economies.

Keywords: Non-state-owned enterprises; Earnings manipulation; Political connection; Delisting; China (search for similar items in EconPapers)
JEL-codes: G38 M41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:36:y:2014:i:c:p:212-222

DOI: 10.1016/j.irfa.2014.01.004

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