State Ownership and Earnings Management around Initial Public Offerings: Evidence from China

ABSTRACT

This study investigates earnings management by firms around their initial public offerings (IPOs) in domestic Chinese equity markets. Using a sample of 437 IPO firms, we find that Chinese firms tend to inflate earnings around their IPOs. We also show that state-owned enterprises (SOEs) manage earnings to a lesser degree than non-state-owned enterprises (NSOEs) do around IPOs. Furthermore, using path analysis, we find that two incentive factors, CEO shareholding and accessibility to bank loans, explain 48 percent of the correlation between state ownership and earnings management for IPO firms. In particular, accessibility to bank loans is a more important incentive factor that leads to less earnings management for SOEs than NSOEs.

Keywords: earnings management, state-owned enterprises, initial public offering

Published Online: 2015-06-01

Article Citation:

C. S. Agnes Cheng, Jing Wang, and Steven X. Wei (2015) State Ownership and Earnings Management around Initial Public Offerings: Evidence from China. Journal of International Accounting Research: Fall, Vol. 14, No. 2, pp. 89-116.