Centralized Drug Procurement and asymmetric earnings management: Evidence from China

Abstract

Using a difference-in-differences approach, we study the impact of Centralized Drug Procurement (CDP) on the earnings management of pharmaceutical firms in China. We find an asymmetric earnings management effect that winning firms manage earnings upward, whereas losing firms manage earnings downward. Further analyses show that upward earnings management by winning firms is stronger for firms with more analysts following, shares pledged, and strong competition, whereas downward earnings management by losing firms is more pronounced for young firms, non-state-owned enterprises, and high government subsidy firms.