IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v85y2025ipcs1544612325013170.html

The effectiveness of administrative law and corporate earnings management

Author

Listed:
  • Wang, Congcong
  • Liu, Guanying

Abstract

Taking advantage of a comprehensive dataset of Chinese publicly traded enterprises over the period of 2015 and 2024, this paper explores the profound implications of administrative law effectiveness for corporate earnings management behavior. The empirical evidence shows that the effectiveness of administrative law greatly inhibits corporate earnings management, and this effect is specially evident for non-state-owned entities and entities with political connections. Further research reveals that information transparency and the likelihood of penalties are core economic mechanisms underlying this linkage. Overall, this study advances the literature on the intersection of law and finance.

Suggested Citation

  • Wang, Congcong & Liu, Guanying, 2025. "The effectiveness of administrative law and corporate earnings management," Finance Research Letters, Elsevier, vol. 85(PC).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pc:s1544612325013170
    DOI: 10.1016/j.frl.2025.108059
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612325013170
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2025.108059?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Sunil Dutta & Frank Gigler, 2002. "The Effect of Earnings Forecasts on Earnings Management," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 40(3), pages 631-655, June.
    2. Connie L. Becker & Mark L. Defond & James Jiambalvo & K.R. Subramanyam, 1998. "The Effect of Audit Quality on Earnings Management," Contemporary Accounting Research, John Wiley & Sons, vol. 15(1), pages 1-24, March.
    3. Zheng, Yong & Han, Yue, 2025. "Supervisory board, internal control quality, and earnings management," Finance Research Letters, Elsevier, vol. 77(C).
    4. Somnath Das & Pervin K. Shroff & Haiwen Zhang, 2009. "Quarterly Earnings Patterns and Earnings Management," Contemporary Accounting Research, John Wiley & Sons, vol. 26(3), pages 797-831, September.
    5. Chi, Jianxin (Daniel) & Gupta, Manu, 2009. "Overvaluation and earnings management," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1652-1663, September.
    6. Kim, Jaehyeon & Kim, Yongtae & Zhou, Jian, 2017. "Languages and earnings management," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 288-306.
    7. Wang, Yu & Song, Gaoya & Lu, Yiming, 2025. "Firm-bank common ownership and earnings management: Evidence from China," Finance Research Letters, Elsevier, vol. 78(C).
    8. Chai, Shanglei & Zhou, Qianqian & Ji, Qiang & Liu, Zuankuo & Liu, Changyu & Chu, Wenjun, 2025. "Inhibition or inducement? The impact of carbon emissions trading scheme (ETS) on corporate earnings management from the perspective of public pressure," International Review of Financial Analysis, Elsevier, vol. 101(C).
    9. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
    10. Zhang, Shihan, 2025. "The influence of 'Bond Connect' on corporate real earnings management," Finance Research Letters, Elsevier, vol. 77(C).
    11. Teng, Huiyang & Li, Xiaoshuo & Liu, Yuyan, 2024. "Industrial robot use and corporate real earnings management: Evidence from China," Finance Research Letters, Elsevier, vol. 69(PB).
    12. Chi-Wen Jevons Lee & Laura Yue Li & Heng Yue, 2006. "Performance, Growth and Earnings Management," Review of Accounting Studies, Springer, vol. 11(2), pages 305-334, September.
    13. Caramanis, Constantinos & Lennox, Clive, 2008. "Audit effort and earnings management," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 116-138, March.
    14. Zhai, Qifan & Xu, Lin, 2025. "Employee welfare and earnings management," International Review of Financial Analysis, Elsevier, vol. 102(C).
    15. Nguyen, Quynh & Kim, Maria H. & Ali, Searat, 2024. "Corporate governance and earnings management: Evidence from Vietnamese listed firms," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 775-801.
    16. repec:eme:mfppss:v:36:y:2010:i:7:p:629-645 is not listed on IDEAS
    17. Ryan Davidson & Jenny Goodwin‐Stewart & Pamela Kent, 2005. "Internal governance structures and earnings management," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(2), pages 241-267, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nazik Maqsood & Tanveer Ahmad Shahid & Abaid Ul Rehman, 2024. "The Impact of Dividend and Tax Avoidance on Earning Management of Companies," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(1), pages 256-272.
    2. Yang, Mian & Tang, Wenliang, 2022. "Air pollution, political costs, and earnings management," Emerging Markets Review, Elsevier, vol. 51(PA).
    3. Chyz, James A. & Eulerich, Marc & Fligge, Benjamin & Romney, Miles A., 2023. "Codetermination and aggressive reporting: Audit committee employee representation, tax aggressiveness, and earnings management," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).
    4. Daniela Hohenfels & Reiner Quick, 2020. "Non-audit services and audit quality: evidence from Germany," Review of Managerial Science, Springer, vol. 14(5), pages 959-1007, October.
    5. Dang, Man & Puwanenthiren, Premkanth & Truong, Cameron & Henry, Darren & Vo, Xuan Vinh, 2022. "Audit quality and seasoned equity offerings methods," International Review of Financial Analysis, Elsevier, vol. 83(C).
    6. El-Helaly, Moataz & Georgiou, Ifigenia & Lowe, Alan D., 2018. "The interplay between related party transactions and earnings management: The role of audit quality," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 32(C), pages 47-60.
    7. Nguyen, Quynh & Kim, Maria H. & Ali, Searat, 2024. "Corporate governance and earnings management: Evidence from Vietnamese listed firms," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 775-801.
    8. Chanchal Chatterjee, 2020. "Board Quality and Earnings Management: Evidence from India," Global Business Review, International Management Institute, vol. 21(5), pages 1302-1324, October.
    9. Setia-Atmaja, Lukas & Haman, Janto & Tanewski, George, 2011. "The role of board independence in mitigating agency problem II in Australian family firms," The British Accounting Review, Elsevier, vol. 43(3), pages 230-246.
    10. Hideaki Sakawa & Naoki Watanabel, 2021. "Earnings quality and internal control in bank-dominated corporate governance," Asian Business & Management, Palgrave Macmillan, vol. 20(2), pages 188-220, April.
    11. Karampinis, Nikolaos I., 2021. "A cross-national analysis on the impact of enforcement on impairments of tangible assets under IFRS," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    12. Hu, Juncheng, 2021. "Do facilitation payments affect earnings management? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 68(C).
    13. Singh, Abhijeet & Singh, Harjinder & Sultana, Nigar & Evans, John, 2019. "Independent and joint effects of audit partner tenure and non-audit fees on audit quality," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(2), pages 186-205.
    14. Alzoubi, Ebraheem Saleem Salem, 2018. "Audit quality, debt financing, and earnings management: Evidence from Jordan," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 30(C), pages 69-84.
    15. Sarowar Hossain & Jeff Coulton & Jenny Jing Wang, 2023. "Client Importance and Audit Quality at the Individual Audit Partner, Office, and Firm Levels," Abacus, Accounting Foundation, University of Sydney, vol. 59(2), pages 650-696, June.
    16. Masahiro Enomoto, 2018. "Cross-Country Research on Earnings Quality: A Literature Review and Future Opportunities," Discussion Paper Series DP2018-06, Research Institute for Economics & Business Administration, Kobe University, revised Oct 2020.
    17. Persakis, Anthony & Iatridis, George Emmanuel, 2016. "Audit quality, investor protection and earnings management during the financial crisis of 2008: An international perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 73-101.
    18. Aboud, Ahmed & Brandon, Sonia & Bassyouny, Hesham & Papadimitri, Panagiota & Abdelfattah, Tarek, 2025. "Social capital, corporate governance, and earnings management: Cross-country evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 59(C).
    19. Nezlobin, Alexander & Sloan, Richard G. & Giedt, Jenny Zha, 2022. "Construct validity in accruals quality research," LSE Research Online Documents on Economics 112165, London School of Economics and Political Science, LSE Library.
    20. Ali, Muhammad Jahangir & Biswas, Pallab Kumar & Chapple, Larelle & Kumarasinghe, Sriyalatha, 2024. "Institutional ownership and earnings quality: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:85:y:2025:i:pc:s1544612325013170. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.