Institutional Constraints or Institutional Induction?——Empirical Evidence from the Earnings Management Strategy Evolution in Chinese Listed Companies

Abstract

Abstract:

This paper uses 12 years of dynamic panel data of 700 listed firms in Shanghai and Shenzhen stock markets in the period 2001-2011 as the study sample, and applies the system GMM method to test the effect of institutional environment on accrual earnings management and real earnings management in listed companies. The study also explores the role of institutional environment during firm's earnings management strategy transition. The results show: improved institutional environment helps to curb Accruals-based earnings management by listed companies, but will induce the companies to increase real earnings management. The continuous improvement of the institutional environment and a constant promotion of marketization are designed to prevent listed companies' earnings management strategies from gradually changing from accrual-based to real earnings management. This study helps in understanding the institutional root-cause of enterprise's earnings management strategy change, as well as providing inspiration to regulatory authorities to formulate related policies to control earnings management.

Key words: institutional environment, accrual-based earnings management, real earnings management, earnings management strategic, system GMM estimation

Chen Kejing, Li Yanxi, Sun Wenzhang, Yang Li. Institutional Constraints or Institutional Induction?——Empirical Evidence from the Earnings Management Strategy Evolution in Chinese Listed Companies[J]. , 2016, 28(5): 122-136.

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