The study finds that analyst skill plays a key factor to explain the complicated and chaotic relation between analyst coverage and external governance. We divide analysts into multiple skill groups by GMM (Gaussian mixture model) method, and explore the effect of the coverage by skilled analysts on earnings management in Chinese listed companies. The results indicate that only the coverage of skilled analysts shows a significant negative correlation with earnings management. Heterogeneity analysis reveals that the negative relationship between the coverage of skilled analysts and earnings management is primarily observed in non-state-owned companies, those with weaker external audits, and smaller-scale firms. The conclusion remains robust after considering endogeneity issues. The findings of this study suggest that incorporating analyst skill contributes to a better understanding of the mechanisms through which analysts influence corporate governance. It also highlights that the role of analysts in corporate governance cannot be generalized.

Purpose – Using a sample of 9,898 firm-year observations from 1,821 unique Chinese listed firms over the period from 2004 to 2019, this study aims to investigate whetherthe marketrewards meeting or beating analyst earnings expectations (MBE). Design/methodology/approach –The authors use an event study methodology to capture marketreactions to MBE. Findings – The authors document a stock return premium for beating analyst forecasts by a wide margin. However,there is no stock return premium forfirms that meet orjust beat analystforecasts, suggesting that the market is skeptical of earnings management by these firms. This market underreaction is more pronounced for firms with weak external monitoring. Further analysis shows that meeting or just beating analyst forecasts is indicative of superior future financial performance. The authors do not find firms using earnings management to meet or just beat analyst forecasts. Research limitations/implications – The authors provide evidence of market underreaction to meeting or just beating analyst forecasts, with the market’s over-skepticism of earnings management being a plausible mechanism for this phenomenon. Practical implications – The findings of this study are informative to researchers, market participants and regulators concerned about the impact of analysts and earnings management and interested in detecting and constraining managers’ earnings management. Originality/value – The authors provide new insights into how the market reacts to MBE by showing that the market appears to focus on using meeting or just beating analyst forecasts as an indicator of earnings management, while it does not detect managed MBE. Meeting or just beating analyst forecasts is commonly used as a proxy for earnings management in the literature. However, the findings suggest that it is a noisy proxy for earnings management.

Purpose – The aim of this paper is to provide additional insights on the association between real earnings management (REM) and crash risk, particularly from the perspective of an emerging market economy. It also examines the moderation role that internal and external corporate governance may play in this area. Design/methodology/approach – Relying on archival data from the RESSETand CSMAR databases over a timeframe from 2010 to 2018 of China listed company, the authors test the hypotheses by regressing common measures of crash risk on the treatment variable (REM) and crash risk control variables identified in the prior crash risk literature. The authors also introduce monitoring proxies (internal controls as an internal governance and institutional ownership as an external governance) and assess how effective internal and external governance moderate the relation between REM and stock price crash risk. Findings – The results suggest firms with higher REM have a significantly greater stock price crash risk, and that this association is mitigated by external monitoring. That is, greater institutional ownership, particularly pressure insensitive owners, mitigates the impact of REM on stock price crash risk. However, internal control does not mitigate the association between REM and stock price crash risk. Originality/value – Following the passage of the Sarbanes–Oxley (SOX) Act, prior research has documented an increase in the use of REM and a positive association between REM and cash risk. The authors demonstrate that they persist in one of the largest emerging markets where institutional regulations, market conditions and corporate behaviors are different from those in developed markets. Also, the assessment of the moderation effect of internal and external governance mechanisms could have meaningful implications for investors and regulators in Chinese and other emerging markets.

We investigate the employment consequences of earnings management. Using audit firm consolidation as an exogenous shock impacting earnings management, we find a positive casual effect of firm-level earnings management on employment growth. The effect is concentrated in privately owned enterprises and firms with higher operational risk, consistent with earnings management affecting labor dynamics by influencing employees’ perceptions of job security and subsequent career decisions. We further document a crowding out effect in local labor market, where a firm’s earnings management negatively influences the employment growth of local peer firms.

This paper explores the relationship between ESG ratings and real earnings management using the data of Chinese listed companies from 2008 to 2021. We find that ESG ratings and real earnings management are negatively correlated. It reveals that the improvement of ESG rating will help to improve the level of corporate governance, standardize the business activities of enterprises and thus help to reduce the real earnings management of enterprises. Our findings still hold after controlling for potential endogeneity and robustness issues. Further analysis shows that internal and external oversight of companies further strengthens the negative relationship between ESG ratings and true earnings management. Overall, the impact mechanism of ESG rating on real earnings management revealed by us has clear policy implications for how managers can improve the quality of information disclosure in emerging markets.

Recent financial frauds in China such as Kangmei Pharmaceuticals’ case have raised suspicion in the capital market and among academics about the reliability of accounting information of listed companies, and as a result, various non-financial information that is compulsory or encouraged to be disclosed by regulators and voluntarily disclosed by listed companies is gradually gaining attention from various stakeholders and academics. The corporate social responsibility (CSR) information is one of the most widely disclosed non-financial information by listed firms, but its reliability and motivation are also questionable, for example, is CSR commitment affected by firms’ financial information quality? Using China a-share listed companies that disclosed their corporate social responsibility reports from 2009-2019 as a sample, we investigate whether earnings management can influence corporate social responsibility by analysing the management’s motives embedded in earnings management, in order to further examine whether Chinese listed companies are morally motivated to undertake social responsibility or use social responsibility as a strategic tool to maintain the reputation of the firm and the management. The results of the study show that earnings management and CSR are positively correlated, and the finds continue to be robust when using 2SLS, Heckman two-step regression and propensity score matching to control for reverse causality and self-selection bias, proving that China's listed companies are ethically motivated to fulfil their social responsibility. Therefore, it is important to focus on the quality of earnings information in order to perceive the motivation of CSR when evaluating a company’s CSR commitment.

Distinct from existing studies on general institutional investors and institutional investor cliques, this study examines how common institutional owners, who simultaneously hold more than 5% equity blocks in at least two publicly traded firms within the same industry, influence firms’ bad mergers and acquisitions (M&As) in China. Contrary to the “conspiracy tort” view, according to which common institutional owners are more likely to vote for bad M&A deals to pursue internalized gains from industry portfolios (Antón et al., 2022b), our results strongly support the “synergy governance” view, according to which common institutional owners perform more actively and effectively in monitoring against bad M&As and improving M&A quality. There is further evidence that common institutional owners with greater peer linkages and industry power and longer-term holdings are more likely to oppose deals with negative acquirer returns. Finally, we find that the effect of common institutional ownership on M&As is more pronounced among firms with stronger earnings management, moderate stock return synchronicity, less management shareholding and higher management expenses. The results are consistent with the “synergy governance” hypothesis whereby common institutional owners are able to leverage their advantages of industry information and supervisory experience to improve the information environment and corporate governance of the firms they hold. Overall, in China’s market, common institutional owners play an active external governance role and effectively improve M&A quality.

This study investigates the impact of independent directors' participation in the shareholders meeting on corporate governance, and finds that the more frequently the independent directors attend shareholder meetings, the lower the degree of earnings management by the enterprise; the mechanism test shows that more information increases the probability, frequency, and severity of independent directors’ subsequent dissenting opinions; This study identified a new channel for independent directors to independently obtain true information and this is of great significance for regulators, shareholders, company board, and other stakeholders with an interest in how the information influence independent directors governance effects.

This paper examines the effects of Chinese venture capital (VC)’s final exit on their portfolio companies. We find that, compared to other early investors, VCs achieve significantly higher returns from their exit of the portfolio companies. We use the presence of VC directors and the introduction of high-speed rail to address identification concerns. Announcements manipulation and earnings management are plausible channels through which VCs achieve higher returns when they exit from the companies. VCs’ exit negatively influences their portfolio companies’ long-term performance. Our paper sheds new light on the value creation role played by VCs and discovers a previously ignored adverse effect of VCs – the exploitation of their portfolio companies.

This paper examines the association between acquisition performance commitment and earnings management in an emerging market where investor protection mechanisms are not well established. Based on a sample of acquisition transactions by listed firms in China during 2008-2017, we find evidence that firms committed to certain performance targets in acquisition transactions tend to engage in earnings management to meet their commitments. This phenomenon is more pronounced at the later stage of the commitment period. Further, the positive relation between performance commitment and earnings management is attenuated by a stronger governance structure. Finally, we find firms that managed to just meet performance targets experience worsened accounting-based and market-based performances and higher probability of goodwill impairments immediately after the commitment period. This paper contributes to the acquisition literature by providing evidence from an emerging market of post-contractual opportunistic behavior.