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Accounting Standards and Earnings Management: Evidence from China

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  • Donghua Zhou
  • Ahsan Habib

Abstract

This article examines the effect of an asset impairment–related regulatory reform on earnings management in China. Chinese Accounting Standard No. 8 (CAS No. 8), which prohibits the reversal of long‐lived asset impairments, was promulgated to constrain managerial opportunism with respect to previously recognized impairment loss reversal. CAS No. 8 forbids the reversal of long‐lived asset impairment losses only, while allowing the reversal of short‐term asset impairment losses. Based on a sample of China's A‐share listed companies on the Shanghai and Shenzhen Stock Exchange during the period 2001–2008, we reveal that managers use less current asset write‐downs and more reversals in the post–CAS No. 8 period. However, such reporting practices do not appear to be influenced by managerial incentives to avoid reporting losses and/or for “big bath” accounting purposes. Résumé Les auteurs étudient l'incidence de la réforme de la réglementation chinoise relative à la dépréciation des actifs sur la gestion du résultat. La norme comptable n˚ 8 (CAS n˚ 8) de la Chine, qui interdit la reprise de dépréciation des actifs à long terme, a été promulguée dans le but de restreindre le comportement opportuniste des dirigeants en ce qui a trait à la reprise de dépréciation antérieurement constatée. Cette norme proscrit la reprise de dépréciation des actifs à long terme seulement, et non celle des actifs à court terme. À partir d'un échantillon de sociétés chinoises dont les actions de catégorie A sont cotées aux Bourses de Shanghai et de Shenzhen au cours de la période 2001–2008, les auteurs constatent que les dirigeants ont moins recours à la dépréciation des actifs à court terme et davantage à la reprise de dépréciation de ces actifs dans la période postérieure à l'adoption de la CAS n˚ 8. Ces pratiques ne semblent cependant pas être influencées par la propension des dirigeants à éviter la présentation de pertes et (ou) à nettoyer le bilan.

Suggested Citation

  • Donghua Zhou & Ahsan Habib, 2013. "Accounting Standards and Earnings Management: Evidence from China," Accounting Perspectives, John Wiley & Sons, vol. 12(3), pages 213-236, September.
    • Handle: RePEc:wly:accper:v:12:y:2013:i:3:p:213-236
    DOI: 10.1111/1911-3838.12016
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    References listed on IDEAS

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    6. Beaver, William H. & McNichols, Maureen F. & Nelson, Karen K., 2003. "Management of the loss reserve accrual and the distribution of earnings in the property-casualty insurance industry," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 347-376, August.
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