Media Supervision, Rule of Law and Earnings Management of Listed Companies

Abstract

Abstract:

There exist significant regional differences in the legal environment of transitional economies and in some regions the mandato-ry rectification mechanism at legal level is not effective enough to constrain listed companies' earnings management behaviors, so an al-ternative rectification mechanism often appears in the market to reinforce the inadequate legal protection from law.Using data of compa-nies listed in Shanghai and Shenzhen stock exchanges in the period 2009-2013, a total of 6266 observations, as a research object, we empirically test the governance effect of media supervision and law on the earnings management of listed companies, examine the substi-tution effect of media supervision in weak legal environment, which reveals that, this substitution effect differs under different ownership nature.Results show that media supervision can effectively restrict listed companies' earnings management behavior.Rule of law can re-duce the level of listed companies' earnings management.Media supervision is an effective non-legal alternative mechanism for restrai-ning listed companies' earnings management behavior, i.e., strong media supervision can effectively reduce the earnings management behaviors induced due to weak legal environment.Based on the exploratory study of the ownership nature, from the perspective of the re-gions with relatively high levels of the rule of law, the study shows that in regions with low levels of the rule of law, media supervision is more effective in restraining earnings management of SOEs than that of non-SOEs.

Key words: media supervision, rule of law, earnings management, alternative mechanism, ownership nature

Chen Kejing. Media Supervision, Rule of Law and Earnings Management of Listed Companies[J]. , 2017, 29(7): 3-18.

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