Regional Legal Protection and Earnings Management: Evidence from China

Yuyang Zhang, Konari Uchida () and Hua Bu
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Yuyang Zhang: Kyushu University
Konari Uchida: Kyushu University
Hua Bu: China University of Mining and Technology

A chapter in Corporate Governance in Emerging Markets, 2014, pp 133-155 from Springer

Abstract: Abstract This chapter investigates the impact of regional legal protection on the earnings management of Chinese companies. Chinese data provide a time-variant legal protection index, which is advantageous in controlling for time-invariant, non-legal characteristics. We find that regional legal protection reduces earnings management for the period before the implementation of Split-share Structure Reform. The result is consistent with the conventional wisdom that better legal environments are associated with better earnings quality. Further analyses suggest that a significant relation exists especially between the protection of intellectual property rights and earnings management. This result proposes that legal protection mitigates earnings management that aims to prevent technology spillovers. However, there is no evidence that regional legal protection affects earnings management during the Split-share Structure Reform and after the adoption of IFRS-convergent New Accounting Standards.

Keywords: Corporate Governance; Earning Management; Legal Protection; International Financial Reporting Standard; Supervisory Board (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:csrchp:978-3-642-44955-0_6

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DOI: 10.1007/978-3-642-44955-0_6

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