When Does Earnings Management Matter? Evidence across the Corporate Life Cycle for Non-Financial Chinese Listed Companies

Ammar Hussain, Minhas Akbar, Muhammad Kaleem Khan, Ahsan Akbar, Mirela Panait () and Marian Catalin Voica
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Ammar Hussain: Department of Management Sciences, COMSATS University Islamabad (Sahiwal Campus), Sahiwal 57000, Pakistan
Minhas Akbar: Department of Management Sciences, COMSATS University Islamabad (Sahiwal Campus), Sahiwal 57000, Pakistan
Muhammad Kaleem Khan: School of Management, Xi’an Jiaotong University, Xi’an 710049, China
Ahsan Akbar: International Business School, Guangzhou College of South China University of Technology, Guangzhou 510080, China
Marian Catalin Voica: Department of Cybernetics, Economic Informatics, Finance and Accounting, Petroleum-Gas University of Ploiesti, Ploiesti 100680, Romania

JRFM, 2020, vol. 13, issue 12, 1-19

Abstract: Information availability, firm performance, idiosyncratic volatility and bankruptcy-risk vary across the Corporate Life Cycle (CLC) stages. The purpose of this paper is to examine whether CLC stages explain firm’s propensity to engage in both accrual base and real earning management practices in the context of China. Panel data of 3250 non-financial Chinese listed firms spanning from 2009 to 2018 is used to investigate the proposed relationship. CLC stages were captured through Dickinson’s model, while earnings management is measured by employing both techniques, i.e., accruals-base earnings management and real earnings management. The data were analyzed through Panel data fixed-effects and random-effects techniques. Results reveal that, when compared to shakeout phase, managers’ response to use both earnings management practices is significantly higher during introduction and decline phases, and lower during growth and mature stages of CLC. It suggests that introductory and later-staged firms distort their factual financial information from creditors to obtain loans without strict debt covenants. Our results are robust to alternate measures and specifications. The core contribution of this research is to add a fresh perspective to the CLC research by uncovering its imperative role in influencing the earning management behavior of corporate managers.

Keywords: corporate life cycle; earnings management; accruals-base earnings management; real earnings management; China; debt covenants (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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