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Earnings management in China: an exploratory study

Carlos Noronha (Faculty of Business Administration, University of Macau, Macau, China)
Yun Zeng (Faculty of Business Administration, University of Macau, Macau, China)
Gerald Vinten (British Accreditation Council, London and Southampton Business School, Southampton, UK)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 18 April 2008

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.

Keywords

Citation

Noronha, C., Zeng, Y. and Vinten, G. (2008), "Earnings management in China: an exploratory study", Managerial Auditing Journal, Vol. 23 No. 4, pp. 367-385. https://doi.org/10.1108/02686900810864318

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited