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Investor sentiment and corporate earnings management

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  • Lu, Guangxi
  • Ruan, Fuyi
  • Zhou, Mengdi

Abstract

Utilizing data from Chinese A-share listed companies from 2005 to 2021, this paper examines how investor sentiment affects corporate earnings management and the moderating role of institutional investors. The results reveal that investor sentiment, whether heightened or subdued, significantly influences corporate earnings management in a positive manner. Institutional investors amplify this effect during high sentiment periods but mitigate it when sentiment is low. Further analysis reveals ownership-based differences in how firms respond to sentiment. The findings offer new insights into the interaction between investor sentiment, institutional holdings, and earnings management behavior.

Suggested Citation

  • Lu, Guangxi & Ruan, Fuyi & Zhou, Mengdi, 2025. "Investor sentiment and corporate earnings management," Finance Research Letters, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325009511
    DOI: 10.1016/j.frl.2025.107692
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    Keywords

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    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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