The Effect Of State Ownership On Real Earnings Management: An Empirical Analysis On Chinese Firms
Abstract
By extracting financial and corporate governance data from 300 firms, I
investigated the relationship between State ownership and three proxies of real earnings
management. There are different directions in the affection of state ownership on abnormal
cash flow from the operation, discretionary expenses, and production costs within each
type of real earnings management. Furthermore, I also run the regression test of the relation
between State ownership and real earnings management through the presence of 2
moderating variables: CEO Duality and Number of board meetings. The results indicate a
conclusive positive direction in the manipulation of discretionary expenses, showing that
firms in control and possession of the State authorities are willing to manage their earnings
through the alterations of those expenses. These firms hesitate to engage in manipulations
through cash flow methods, which would directly bring financial suffering if they do not
plan for future days. All three proxies demonstrate a mixed effect, but in a broad view, this
paper can conclude that in a concentration ownership nature as China, SOEs still show
engagement in manipulating earnings, despite the moderating effect of duality and the
increase in the number of board meetings