Article2008

Earnings management in China: an exploratory study

Carlos Noronha · Zeng Yun · Gerald Vinten

63 citations0/0 files storedManagerial Auditing Journal

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

Purpose In recent years, China has been making progress in internationalizing its financial reporting system. However, it is believed that earnings management from legitimate accounting choices to fraud that violates generally accepted accounting principles, is common in the mainland. The purpose of this study is to identify the most frequently used earnings management techniques in China and the underlying factors that motivate firms to engage in earnings management. Design/methodology/approach Data were gained through a questionnaire sent to managers and accountants in mainland Chinese companies. Findings The results show that the size and form of ownership of companies materially influence earnings management incentives and techniques in China. Public ownership companies have stronger incentives to manage earnings for management compensation, while private ownership companies pay more attention to tax expense savings. Also, several popular techniques employed in China are revealed. Originality/value This study presents a general picture of earnings management in China by surveying the opinions of accountants and financial managers in Chinese companies.

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References

1991Earnings Management During Import Relief Investigations 1985Positive Accounting Theory 1999A Review of the Earnings Management Literature and Its Implications for Standard Setting 1985The effect of bonus schemes on accounting decisions 1994Debt covenant violation and manipulation of accruals 2011The effects of bonus schemes on accounting decisions 1998Earnings Management and the Long‐Run Market Performance of Initial Public Offerings 2000Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators

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