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Trading and earnings management: Evidence from China's non-tradable share reform

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  • Xiao, Gang

Abstract

This paper examines the effect of trading on earnings management under the setting of China's non-tradable share reform. The government-enforced reform converted non-tradable shares to tradable and thus enabled blockholders and insiders to reduce holdings via public trading. We find significant increases in accruals among Chinese listed companies after the reform. The impact of the reform on earnings manipulations is increasing with the potential for share trading, the degree of information asymmetry and the intensity of stock selling by insiders and blockholders. Our findings support that trading by large shareholders and insiders significantly increases earnings manipulations.

Suggested Citation

  • Xiao, Gang, 2015. "Trading and earnings management: Evidence from China's non-tradable share reform," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 67-90.
  • Handle: RePEc:eee:corfin:v:31:y:2015:i:c:p:67-90
    DOI: 10.1016/j.jcorpfin.2015.01.013
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    References listed on IDEAS

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    Cited by:

    1. Kallunki, Juha-Pekka & Mikkonen, Jenni & Nilsson, Henrik & Setterberg, Hanna, 2016. "Tax noncompliance and insider trading," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 157-173.
    2. repec:bla:apacel:v:30:y:2016:i:2:p:90-104 is not listed on IDEAS

    More about this item

    Keywords

    Trading; Earnings management; The non-tradable share reform of China;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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