Abstract
State-owned enterprises (SOEs) play critical roles in China's economy. This paper employs difference-in-differences method to explore the corporate governance effect of state asset protection based on China's Law on State-owned Assets of Enterprises. The study finds that state asset protection reduces the real earnings management of SOEs by increasing their corporate governance level. This policy effect occurs mostly in firms with non-Big4 auditing, lower analyst following and weaker internal control quality. This paper enriches research in law and finance, expands the literature on property rights theory, and provides empirical evidence for governments to complete policies to clarify ownership in the future.
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