Anti-corruption And SOEs Earnings Management

Earnings management as a common behavior of listed companies,there is empirical evidence that earnings management brings more harm than good,and the executives of listed companies mislead stakeholders to make wrong decisions through earnings management on the one hand,and use earnings management to cover up their own personal gain on the other hand.Academics have conducted rich research around the ways and motives of earnings management,but less attention has been paid to the influence of external public policy shocks on the choice of earnings management methods of state-owned listed companies.In particular,in China,the incentive mechanism of state-owned enterprises’ executives is similar to the promotion mechanism of officials,and they are more sensitive to the reaction of external public policies than private enterprises.Therefore,it is important to study whether the public policy of anti-corruption has an impact on the choice of management style of different state-owned enterprises earnings.The fall of executives reflects the difference in the intensity of the impact of anti-corruption on different state-owned enterprises in the anti-corruption storm.This paper uses a difference in difference method to examine whether quasi-natural experiments of anti-corruption storm shocks affect the choice of different state-owned enterprises earnings management approaches.It is found that(1)the level of real earnings management is significantly higher and the level of accruals earnings management is not significantly changed in state-owned listed companies with the presence of executive fallout compared to state-owned companies without executive fallout.(2)The level of classification shifting is significantly lower in state-owned listed companies with executives who have fallen compared to those without executives who have fallen.(3)State-owned listed companies with executives who have fallen from grace have significantly reduced their investment expenditures in the year following the executive’s fall.(4)Companies with fallen executives who are located in regions with high marketization process implement more real earnings management behaviors after the anti-corruption storm compared to regions with low marketization process.(5)Firms that are audited by the international Big Four have engaged in more real earnings management after the anti-corruption crisis than firms that are not audited by the Big Four.This paper constructs a staggered DID model using the first executive fall of different state-owned enterprises as the anti-corruption external shocks point for a sample of Shanghai state-owned listed companies listed earlier than 2009 and surviving from 2009-2018.By comparing the state owned enterprises experimental group with the presence of executive fall and the control group without the presence of executive fall,we explore whether the anti-corruption shocks have an impact on different state owned enterprises earnings management The paper also further analyzes the impact of the anti-corruption storm on the choice of management style of state-owned enterprises.The paper also further analyzes other economic consequences of the anti-corruption storm,as well as the moderating role of the marketization process and social audit.Although there is a large literature on the economic consequences of anti-corruption policies,there are relatively few studies that explore the impact of anti-corruption policies on firms’ earnings management behavior from the micro-firm perspective.The contributions of this paper are:(1)extending the methodology for measuring the external shocks point of anti-corruption.(2)It enriches the research results of political motivation of earnings management.(3)It provides a theoretical basis for the governance of state-owned enterprises under the new situation of anti-corruption in China.