Does the government’s anti-corruption storm improve the quality of corporate earnings? — Evidence from Chinese listed companies

Abstract

ABSTRACT This paper uses A-share listed companies as a sample to examine the impact of the exogenous event of the 18th National Congress of the Communist Party of China(CPC) on the substitution effect of three types of earnings management behaviors. Under the impact of the anti-corruption storm, while reducing accrual earnings management behaviors, enterprises switch to more hidden earnings management behaviors,such as real earnings management and classification shifting earnings management. The substitution effect of three types of earnings management behaviors also exists in non-SOEs. However, compared with non-SOEs, the decline in accrual earnings management adopted by state-owned enterprises(SOEs), and the increase in real earnings management and classification shifting earnings management are significantly larger than those of non-SOEs. Further research finds that the significant reduction of corporate political connections after the anti-corruption storm is an important way to generate the substitution effect of earnings management behaviors.