Abstract
Utilizing Chinese A-share listed firms from 2008 to 2021, we examine the impact of emission rights mortgage (ERM) policy on firms’ earnings management practices. We find that ERM can significantly reduce earnings management. Moreover, cross-sectional analysis suggests that the main effect is more pronounced for non-SOEs, firms located in regions with higher levels of marketization, those in more competitive industries, and those facing more severe financial constraints. Our study offers valuable insights into the crucial role of ERM in shaping firms' earnings management activities.
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