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.

Applying the principle of the bonding theory, this study examined the relationship between corporate governance practice and performance of Chinese firms that are listed in the major international stock exchanges, including NASDAQ, New York, Hong Kong, Singapore and London AIM markets, and further investigated whether the Chinese firms that adopted the corporate governance mechanisms of the stock exchanges where they are listed would outperform those of firms listed locally in the Chinese stock exchanges that operates in a weak enforcement mechanism environment. Hypotheses are tested using panel data analysis. The results suggest that the Chinese cross-listings exhibit bonding premium only in U.S. markets, while those non-cross-listed Chinese firms demonstrate better firm performance than those listed in London, Singapore, and Hong Kong. Further, the results reveal that for all the cross-listed Chinese firms, profitability rate and the leverage ratio play a positive role in improving the firms’ performance. The adoptions of Big Four auditing firms and international accounting standard as a must-to-do corporate governance mechanism regulated by the host stock exchange has less effects on firm’s performance. The study suggests that merely borrowing a corporate governance mechanism does not guarantee the improvement of corporate governance of a firm, and therefore to its firm performance; rather, a firm’s own background and country effects also matter.

Applying the principle of the bonding theory, this study examined the relationship between corporate governance practice and performance of Chinese firms that are listed in the major international stock exchanges, including NASDAQ, New York, Hong Kong, Singapore and London AIM markets, and further investigated whether the Chinese firms that adopted the corporate governance mechanisms of the stock exchanges where they are listed would outperform those of firms listed locally in the Chinese stock exchange that operates in a weak enforcement mechanism environment. Hypotheses are tested using cross sectional data. The empirical tests show a mixed result. The cross-listings in New York and NASDAQ (dual-listing is excluded) exhibit bonding premium, while those noncross- listed Chinese firms demonstrated better firm performance that those listed in London, Singapore, and Hong Kong. Further, the study shed some lights on the relative importance of various corporate governance mechanisms in enhancing the firm performance in the context of the dominance of state-owned-enterprises in the market. The results reveal that different market has different corporate governance mechanisms under its different macro-environments. For the overall Chinese listings, the second largest shareholder of a firm could play a role as an effective corporate governance mechanism in increasing the firm’s performance. A negative relationship between the size of the board and the corporate governance was found. For those cross-listed Chinese firms, by adopting the stringent financial disclosure and the famous auditing firms could increase the firm performance, but not good enough comparing to these non-cross-listed Chinese firms. Meanwhile, controlling shareholder has negative effect on firm performance for the cross-listed Chinese firms. The study suggests that merely borrowing corporate governance mechanism does not guarantee the improvement of corporate governance (further to its firm performance), rather, firm’s own background and country effects also matter.

This study aims to examine empirically whether ownership structure and corporate governance mechanisms affect income-smoothing behavior in China. The sample comprises 1353 companies listed in the Shanghai Stock Exchange and the Shenzhen Stock Market during the period 1999 to 2006. By comparing the variability of income to the variability of sales an income smoother can be identified if income is less variable. Our empirical results show that the proportion of Chinese firms practicing income-smoothing is greater than those of Singaporean, Japanese and U.S. firms. Income smoothing in China is more severe when the state is the controlling shareholder of the listed firm. Firms with more independent directors are more likely to engage in income smoothing. This article presents the current development of China’s corporate governance system and indicates that agency conflicts between controlling shareholders and minor investors account for a significant portion of earnings management in China.

We examine empirically whether internal corporate governance mechanisms play a role in reducing the probability of being sued by lending banks due to bank loan default and the market reaction to the announcement of bank loan litigation. Using bank loan litigation events in Chinese financial markets, our results show that companies with better internal corporate governance mechanisms are associated with a lower probability of being sued. We also find a significant negative market reaction to the announcement of a bank loan filing while insignificant market reaction to the announcement of bank loan litigation verdict. Moreover, we test whether internal corporate governance mechanisms can play a role in mitigating the effect of market reactions. Our findings indicate that there is no evidence of internal corporate governance in mitigating this effect. Our paper suggests that internal corporate governance mechanisms are important in preventing the trigger of external governance mechanisms (litigation) but do not play any role once external governance (litigation) takes over.

The paper, based on the samples of 2003, makes empirical analyses of China listed companies from the perspective of Chinese Corporate Governance Index ( ) and its six dimensions: the index of controlling shareholders’ behaviors, board governance index, top management governance index, information disclosure index, stakeholders’ governance index, supervisors committee governance index, and find that is positively associated with return on assets (ROA), net assets per share (NAPS), earnings per share (EPS), operating cash flow per share (OCFPS), total assets turnover (TAV), rate of total assets growth (ITA) and Z-score. These indicate that good corporate governance mechanisms improve profitability, stock expansion ability, operating efficiency, growth and development potential, as well as financial flexibility and safety of listed companies. Corporate governance mechanisms of controlling shareholders, board of directors, top management, information disclosure, stakeholders and supervisors committee are largely responsible for decision-making and decision-execution mechanisms, and furthermore, they have direct and profound effects on the performance and value of listed companies.

In this paper, we examine investors’ valuations of corporate cash hoardings and dividend payout to explicitly isolate the monitoring effect from the information effect of corporate disclosure activity. In a sample of 951 firms from 38 countries, we find that cash resources are rewarded with higher market valuation when greater disclosure improves a firm’s transparency. These results suggest that extensive disclosure enhances external monitoring and thus limits insiders’ ability to accumulate cash to expropriate minority shareholders. In further support of the monitoring effect of strong disclosure, we find that dividend payout is valued at a premium in opaque firms where cash is more vulnerable to consumption of private control benefits. Overall, our findings support the disciplinary role of firm-level disclosure policy in corporate governance mechanisms.

We investigate how the market for corporate control (external governance) and shareholder activism (internal governance) interact. Looking at equity prices from 1990 to 2001, we find that these mechanisms are strong complements. A portfolio that buys firms with the highest level of takeover vulnerability and shorts firms with the lowest level of takeover vulnerability generates an annualized abnormal return of 10 - 15% only when public pension fund (blockholder) ownership is high as well. A similar portfolio created to mimic the importance of internal governance generates annualized abnormal returns of 8%, though only in the presence of ‘high’ vulnerability to takeovers. Further, we show that the complementary relation exists for firms with lower industry-adjusted leverage and is stronger for smaller firms. The complementary relation is confirmed using accounting measures of profitability. Using data on acquisitions, firm level Q’s and accounting performance, we explore possible interpretations, providing preliminary evidence for a risk effect as well.