Share pledge and earnings persistence: evidence from China

Mingyuan You, Xinruo Wang and Joanna (Jingwen) Zhao

Asia-Pacific Journal of Accounting & Economics, 2024, vol. 31, issue 6, 1123-1138

Abstract: This paper studies the effect of share pledges on earnings persistence and the mechanism that explains the effect. We find that both the existence of share pledges and the percentages of pledged shares are negatively related to firms’ earnings persistence, and the results are robust to the DID analysis. Our results indicate that firms with share pledges are more likely to engage in upward earnings management, resulting in diminished earnings persistence. We further find that the negative effect of share pledges on earnings persistence is most significant among non-SOEs, followed by local government-controlled SOEs, and insignificant among central government-controlled SOEs. The effect is mitigated when firms are subject to better audit monitoring or have higher institutional ownership.

Date: 2024
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DOI: 10.1080/16081625.2023.2216708

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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