Environmental regulation and real earnings management—Evidence from the SO2 emissions trading system in China

Xiaoqi Chen, Weiping Li, Zifang Chen and Jiashun Huang

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: This study investigates the effect of environmental regulations on the real earnings management and accrual earnings management of firms. Based on China's sulfur dioxide(SO2) emissions trading program, we adopt a difference-in-difference approach and find that the emissions trading program is negatively associated with real earnings management. The negative relation is stronger for firms with high information asymmetry and firms with poor corporate governance. Our findings suggest that market-based environmental regulations such as the cap-and-trade program can indeed incentivize firms to provide better earnings quality even in a weak institutional environment.

Keywords: SO2 emissions; Real earnings management; Information asymmetry; Corporate governance (search for similar items in EconPapers)
JEL-codes: G34 K23 M41 Q58 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004086

DOI: 10.1016/j.frl.2021.102418

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