Corporate governance, ownership structure and managing earnings to meet critical thresholds among Chinese listed firms

Liona Lai () and Henry Tam ()
Additional contact information
Liona Lai: York University

Review of Quantitative Finance and Accounting, 2017, vol. 48, issue 3, No 8, 789-818

Abstract: Abstract This study investigates the behaviors of Chinese listed firms in using non-operating below-the-line items to manage earnings to meet rights-issuance threshold and to avoid delisting, and whether ownership structure and certain corporate governance mechanisms are related to such earnings management behaviors. The present empirical analyses document that the likelihood of managing earnings to meet these critical regulatory thresholds is negatively related to the adoption of independent directors in the board of directors and to the percentage shareholdings of the largest shareholders and positively related to the percentage share of state ownership in China. Further investigation documents that the relationship between earnings management and the fraction of independent directors in the board could be non-linear. There is little evidence, however, that board size, percentage shareholdings of CEO, the duality of CEO and top director of the board, the quality of external auditor, or foreign ownership is related to such earnings management measure. Using the distribution approach to detect earnings management, this study supplements the extant literature on the relationship between corporate governance, ownership structure and earnings management using traditional accrual-based measures. This study offers insights to policy makers, particularly those in emerging economies, about the inducement of earnings management behaviors by government regulations and the prescription to deter earnings management behaviors by encouraging certain internal corporate governance mechanisms.

Keywords: Corporate governance; Ownership structure; Earnings management; Earnings thresholds; China (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://link.springer.com/10.1007/s11156-016-0568-y Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:48:y:2017:i:3:d:10.1007_s11156-016-0568-y

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-016-0568-y

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().