Abstract
This study examines how stock market bubbles will influence firm's incentive to manipulate earnings report. The model predicts that under high level of stock market bubbles, firms are more likely manipulate their earnings reports. We tested this prediction by using a sample of public firms in China's stock market. The result strongly supports the prediction of the model. It also shows that individual stock's price level does not influence the degree and propensity of firm's earnings manipulation significantly, which suggests that firms only use the whole market price level as a reference point when they make the decision of earnings manipulation.
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