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Regional Legal Protection and Earnings Management: Evidence from China

In: Corporate Governance in Emerging Markets

Author

Listed:
  • Yuyang Zhang

    (Kyushu University)

  • Konari Uchida

    (Kyushu University)

  • Hua Bu

    (China University of Mining and Technology)

Abstract

This chapter investigates the impact of regional legal protection on the earnings management of Chinese companies. Chinese data provide a time-variant legal protection index, which is advantageous in controlling for time-invariant, non-legal characteristics. We find that regional legal protection reduces earnings management for the period before the implementation of Split-share Structure Reform. The result is consistent with the conventional wisdom that better legal environments are associated with better earnings quality. Further analyses suggest that a significant relation exists especially between the protection of intellectual property rights and earnings management. This result proposes that legal protection mitigates earnings management that aims to prevent technology spillovers. However, there is no evidence that regional legal protection affects earnings management during the Split-share Structure Reform and after the adoption of IFRS-convergent New Accounting Standards.

Suggested Citation

  • Yuyang Zhang & Konari Uchida & Hua Bu, 2014. "Regional Legal Protection and Earnings Management: Evidence from China," CSR, Sustainability, Ethics & Governance, in: Sabri Boubaker & Duc Khuong Nguyen (ed.), Corporate Governance in Emerging Markets, edition 127, pages 133-155, Springer.
    • Handle: RePEc:spr:csrchp:978-3-642-44955-0_6
    DOI: 10.1007/978-3-642-44955-0_6
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