Chinese Companies, Earnings Management and Accounting-Based Benchmarks

This paper studies whether Chinese-listed firms manage earnings to meet accounting-based regulatory benchmarks. The distribution approach is employed to test the hypotheses that listed Chinese companies’ managed earnings to avoid being delisted and to satisfy the requirements of rights issues. The findings indicate that earnings management behaviour by Chinese firms changes in line with changing regulatory benchmarks, and firms utilise accruals rather than the manipulation of real economic events to do so. The findings in this paper suggest that regulatory authorities should pay close attention to the framework of the regulatory rules they establish.