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When does earnings management matter? Evidence across the corporate life cycle for non-financial Chinese listed companies

Journal of risk and financial management, 2020-12, Vol.13 (12), p.1-19 [Peer Reviewed Journal]

2020 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;ISSN: 1911-8074 ;ISSN: 1911-8066 ;EISSN: 1911-8074 ;DOI: 10.3390/jrfm13120313

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  • Title:
    When does earnings management matter? Evidence across the corporate life cycle for non-financial Chinese listed companies
  • Author: Hussain, Ammar ; Akbar, Minhas ; Khan, Muhammad Kaleem ; Akbar, Ahsan ; Panait, Mirela ; Voica, Marian Cătălin
  • Subjects: Accounting ; accruals-base earnings management ; Bankruptcy ; China ; corporate life cycle ; debt covenants ; Earnings ; Earnings management ; Emerging markets ; Hypotheses ; Industrialized nations ; Investments ; Literature reviews ; Profits ; real earnings management ; Research & development expenditures ; Startups ; Stockholders
  • Is Part Of: Journal of risk and financial management, 2020-12, Vol.13 (12), p.1-19
  • Description: Information availability, firm performance, idiosyncratic volatility and bankruptcy-risk vary across the Corporate Life Cycle (CLC) stages. The purpose of this paper is to examine whether CLC stages explain firm's propensity to engage in both accrual base and real earning management practices in the context of China. Panel data of 3250 non-financial Chinese listed firms spanning from 2009 to 2018 is used to investigate the proposed relationship. CLC stages were captured through Dickinson's model, while earnings management is measured by employing both techniques, i.e., accruals-base earnings management and real earnings management. The data were analyzed through Panel data fixed-effects and random-effects techniques. Results reveal that, when compared to shakeout phase, managers' response to use both earnings management practices is significantly higher during introduction and decline phases, and lower during growth and mature stages of CLC. It suggests that introductory and later-staged firms distort their factual financial information from creditors to obtain loans without strict debt covenants. Our results are robust to alternate measures and specifications. The core contribution of this research is to add a fresh perspective to the CLC research by uncovering its imperative role in influencing the earning management behavior of corporate managers.
  • Publisher: Basel: MDPI
  • Language: English
  • Identifier: ISSN: 1911-8074
    ISSN: 1911-8066
    EISSN: 1911-8074
    DOI: 10.3390/jrfm13120313
  • Source: ProQuest Central
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