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The frequency and magnitude of earnings management in China

Author

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  • Yaping Wang
  • Shaw Chen
  • Bing-Xuan Lin
  • Liansheng Wu

Abstract

Earnings management is an indicator of the corporate governance quality and investor protection standard. We study the frequencies and magnitudes of earnings management under two different thresholds, zero earnings and prior earnings, in the Chinese market from 1997 to 2004. We model earnings as a mixed-normal distribution and obtain parameter estimators that measure the frequency and magnitude of earnings management. We show that the practice of earnings management has gone up both in frequency and magnitude during the post-2000 period. We also find that the frequency and magnitude of earnings management are higher when firms try to avoid negative earnings than when firms try to report earnings increase. Our findings reflect the current economic environment in China and caution investors on the low-disclosure quality in the Chinese stock market.

Suggested Citation

  • Yaping Wang & Shaw Chen & Bing-Xuan Lin & Liansheng Wu, 2008. "The frequency and magnitude of earnings management in China," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3213-3225.
  • Handle: RePEc:taf:applec:v:40:y:2008:i:24:p:3213-3225
    DOI: 10.1080/00036840600994138
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    Cited by:

    1. Olivier Vidal, 2010. "Gestion Du Résultat Pour Éviter De Publier Une Perte : Les Montants Manipulés Sont-Ils Marginaux ?," Post-Print hal-00840910, HAL.
    2. Jianan Guo, 2016. "Ultimate Controlling Shareholders and Dividend Payout Policy in Chinese Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-35, June.
    3. Olivier Vidal, 2011. "Comment mesurer les irrégularités de distribution des résultats publiés ?," Post-Print hal-00594840, HAL.
    4. Olivier Vidal, 2011. "De l'importance des seuils en comptabilité," Post-Print hal-00594834, HAL.
    5. Olivier Vidal, 2011. "De l'importance des seuils en comptabilité," Post-Print hal-00650591, HAL.

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