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Firm-bank common ownership and earnings management: Evidence from China

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  • Wang, Yu
  • Song, Gaoya
  • Lu, Yiming

Abstract

Based on a unique dataset of the equity relations between Chinese listed companies and the banks that provide them with loans, this paper empirically examines the impact and mechanisms of firm-bank common ownership on corporate earnings management. We find that firm-bank common ownership significantly reduces corporate earnings management behavior. Next, we use instrumental variable regression, the PSM method, along with a series of supplementary analyses to validate the robustness of the results. In terms of the mechanism, we find that firm-bank common ownership significantly improves firms' loan accessibility, and thus suppresses the incentive for earnings management. Our research broadens existing studies on the impact of firm-bank common ownership and provides new insights into the determinants of corporate earnings management.

Suggested Citation

  • Wang, Yu & Song, Gaoya & Lu, Yiming, 2025. "Firm-bank common ownership and earnings management: Evidence from China," Finance Research Letters, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:finlet:v:78:y:2025:i:c:s154461232500474x
    DOI: 10.1016/j.frl.2025.107211
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