The Impact of Corporate Governance on Informative Earnings Management in the Chinese Market

Zhijun LIN, Ming LIU*, Carlos Noronha

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

16 Citations (Scopus)

Abstract

This study investigates the relationship between corporate governance and informative earnings management (IEM) for Chinese listed firms. While most previous studies on earnings management adopt the opportunistic perspective, we examine earnings management from the informative perspective, treating discretionary accruals as a means for managers to signal private information to external stakeholders regarding the firm's future cash flows or potential earnings. We hypothesize that good corporate governance practices motivate firm managers to engage in informative earnings management. By developing a measurable proxy of IEM, we test the association of managerial IEM with internal corporate governance mechanisms. The empirical results support our hypotheses, indicating that corporate governance has a positive impact on the possibility of managerial IEM, and better corporate governance should contribute to improving the transparency of financial reporting and the informativeness of reported earnings.

Original languageEnglish
Pages (from-to)568-609
Number of pages42
JournalAbacus
Volume52
Issue number3
DOIs
Publication statusPublished - 1 Sep 2016

Scopus Subject Areas

  • Accounting

User-Defined Keywords

  • Chinese accounting
  • Corporate governance
  • Discretionary accruals
  • Earnings management
  • Informative earnings management

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