Firm-bank common ownership and earnings management: Evidence from China

Yu Wang, Gaoya Song and Yiming Lu

Finance Research Letters, 2025, vol. 78, issue C

Abstract: Based on a unique dataset of the equity relations between Chinese listed companies and the banks that provide them with loans, this paper empirically examines the impact and mechanisms of firm-bank common ownership on corporate earnings management. We find that firm-bank common ownership significantly reduces corporate earnings management behavior. Next, we use instrumental variable regression, the PSM method, along with a series of supplementary analyses to validate the robustness of the results. In terms of the mechanism, we find that firm-bank common ownership significantly improves firms' loan accessibility, and thus suppresses the incentive for earnings management. Our research broadens existing studies on the impact of firm-bank common ownership and provides new insights into the determinants of corporate earnings management.

Keywords: Earnings management; Common ownership; Information asymmetry; Financing constraints (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:78:y:2025:i:c:s154461232500474x

DOI: 10.1016/j.frl.2025.107211

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