State Ownership and Abnormal Accruals in Highly-Valued Firms: Evidence from China

Journal of Contemporary Accounting & Economics, Forthcoming

Posted: 19 Nov 2020

See all articles by Leye Li

Leye Li

UNSW Sydney

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business

Jenny (Jing) Wang

University of Wollongong - School of Accounting, Economics & Finance

Date Written: August 1, 2020

Abstract

We examine how state ownership affects Chinese firms’ abnormal accruals during a period of high valuation. We find the magnitude of abnormal accruals first increases for up to three years of high valuation, and then reduces after the fourth year. We also find that managers turn to using abnormal real transactions after four consecutive years of high valuation. Next, we examine whether the degree of abnormal accruals in highly-valued firms differs between state-owned enterprises (SOEs) and non-NSOEs. Supporting the view that SOE managers have less incentive to sustain high stock prices, we find evidence that highly-valued SOEs have significantly lower levels of abnormal accruals than highly-valued NSOEs during the period of high valuation. Our findings contribute to the literature on the cross-sectional variation in the relation between managers’ pressure to sustain high stock prices and their accounting choices in firms with different ownership structures.

Keywords: Abnormal accruals, China; Highly-valued firms, Real earnings management, State-owned enterprise, Sustained overvaluation

JEL Classification: M41, M43, M44

Suggested Citation

Li, Leye and Monroe, Gary S. and Wang, Jenny (Jing), State Ownership and Abnormal Accruals in Highly-Valued Firms: Evidence from China (August 1, 2020). Journal of Contemporary Accounting & Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3705773

Leye Li (Contact Author)

UNSW Sydney ( email )

UNSW Sydney Australia
Sydeney, NSW 2052
Australia

HOME PAGE: http://www.business.unsw.edu.au/our-people/leye-leonard-li

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
+61293856443 (Phone)

Jenny (Jing) Wang

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

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