Earnings management before rights issues and the subsequent cash transfer in chinese firms

Bi-Huei Tsai*

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Unlike private enterprises in developed markets, political influence is profound upon Chinese state-dominated firms. Under this consideration, this paper demonstrates how political impact interferes in Chinese managers' decisions. State-assigned managers were found to deliberately transfer cash raised via rights issues from the public shareholders to the state by cash dividends in order to please Chinese politicians. Especially, to meet the regulatory requirement of rights issues, managers from firms which distributed more cash dividends in the same year of rights issues were more likely to inflate earnings before rights issues. The earnings inflation which managers use to boost firm's incomes is defined as "earnings management." Furthermore, the empirical results also exhibit that firm's close relationship with the state enables managers to obtain approvals of rights issues easily, which reduces the firm's earnings management tendency. The manager's incentives of earnings management is closely attributed to the political intervention.

Original languageEnglish
Title of host publicationComputational Methods in Science and Engineering - Advances in Computational Science, Lectures Presented at the Int. Conference on Computational Methods in Science and Engineering 2008, ICCMSE 2008
Pages489-492
Number of pages4
DOIs
StatePublished - 1 Dec 2009
Event6th International Conference on Computational Methods in Sciences and Engineering 2008, ICCMSE 2008 - Hersonissos, Crete, Greece
Duration: 25 Sep 200830 Sep 2008

Publication series

NameAIP Conference Proceedings
Volume1148 2
ISSN (Print)0094-243X
ISSN (Electronic)1551-7616

Conference

Conference6th International Conference on Computational Methods in Sciences and Engineering 2008, ICCMSE 2008
CountryGreece
CityHersonissos, Crete
Period25/09/0830/09/08

Keywords

  • Agency theory
  • Cash dividend
  • China
  • Earnings management
  • Political science
  • Regression analysis
  • Rights issue
  • Social science
  • State
  • Statistics

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