TY  - JOUR
AB  - Purpose Currently, most research studies focus on ownership reforms and governance reforms, while only a few research studies focus on management system innovations. Based on an evolution of state-owned enterprises’ (SOEs) performance appraisal systems, this paper investigates the influence of performance appraisal system on earnings management.Design/methodology/approach Using a natural experiment that central government-owned enterprises (CGOEs) carried out economic value-added performance appraisal (EVA-PA) in 2010, the authors adapt difference-in-difference method to analyze the relationship between EVA-PA and earnings management choice. Furthermore, the authors consider the situation which contained financial status, separation between decision-making rights and decision-control rights, separation between ownership and control and industrial characteristics.Findings The research finds that after carrying out EVA-PA, CGOEs prefer accrual-based earnings management to real earnings management, and there is substitution effect between the two types of earnings management. Moreover, further research studies reveal that enterprises suffering losses in the previous year and featuring higher separation between decision-making rights and decision-control rights and higher separation between ownership and control have stronger earnings management motive under EVA-PA. In contrast, enterprises achieving satisfactory financial performance in the previous year and engaging in businesses within protective industry have weaker earnings management motive under EVA-PA. After the implementation of EVA-PA, accrual-based earnings management and real earnings management both impair operating performances of CGOEs.Originality/value Theoretically, this paper enriches research studies on earnings management from the perspective of incentive mechanism and expands research studies on economic consequences of EVA-PA. In addition, it validates the relationship between the two types of earnings management. As an important mechanism of corporate management and control, performance appraisal system is an important part for establishing ownership management system and improving internal management system of SOEs.
VL  - 11
IS  - 2
SN  - 2040-8749
DO  - 10.1108/NBRI-10-2019-0051
UR  - https://doi.org/10.1108/NBRI-10-2019-0051
AU  - He Weifeng
AU  - Chen Liping
AU  - Liu Wei
PY  - 2020
Y1  - 2020/01/01
TI  - Does new performance appraisal system (EVA) affect earnings management?
T2  - Nankai Business Review International
PB  - Emerald Publishing Limited
SP  - 191
EP  - 216
Y2  - 2024/04/25
ER  -