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The Chinese stimulus program from 2008 to 2010 and accounting information quality

Author

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  • Hao, Qian
  • Shi, Xiangyan
  • Bu, Danlu

Abstract

The Chinese government launched a massive fiscal stimulus package of 4 trillion RMB in November 2008. This paper analyzes this stimulus program’s effect on accounting information quality. We expect a decline in earnings persistence for firms that received the bailout funds due to the low investment efficiency and the nature of this non-tax based and investment-focused stimulus program. Consistent with our hypothesis, we find that the persistence of earnings and therefore the value-relevance of earnings significantly declined for firms after they received the bailout funds. In addition, the decline in value-relevance of earnings can be attenuated by the Big Four auditors. This paper provides substantial evidence that accounting quality is influenced by the institutional characteristics and highlights the importance of understanding the negative impact of government intervention on accounting quality. The policy implication is that governments should be cautious about adopting large stimulus measures, although they are usually considered effective in stimulating the economy.

Suggested Citation

  • Hao, Qian & Shi, Xiangyan & Bu, Danlu, 2018. "The Chinese stimulus program from 2008 to 2010 and accounting information quality," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 33(C), pages 64-78.
    • Handle: RePEc:eee:jiaata:v:33:y:2018:i:c:p:64-78
    DOI: 10.1016/j.intaccaudtax.2018.11.001
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