Publication
Title
Earnings management asset restructuring, and the threat of exchange delisting in an earnings-based regulatory regime
Author
Abstract
Manuscript Type: Empirical Research Question/Issue: This study examines the effect of an earnings-based listing regulation on corporate financial reporting management. In 2001, China revised its listing standards requiring compulsory stock suspension for firms reporting three-year consecutive losses. Suspended stocks are further delisted if they continue to report losses in the year of stock suspension. Research Findings/Insights: Our results show that firms approaching the delisting procedure use more earnings management, although the effect is minor. Meanwhile, we observe that delisting risk induces extensive performance-enhancing asset restructuring activities. For firms turning losses into profits, our evidence suggests a negative relationship between earnings management and asset restructuring. Theoretical/Academic Implications: This study extends the earnings management literature by suggesting that earnings management to avoid losses is likely to increase with the severity of the losses and decline with asset restructuring activities. In addition, this research adds to the literature on the economic consequences of the delisting process. Practitioner/Policy Implications: The study provides evidence that an earnings-based delisting regulation is a doubleedged sword which leads to either earnings management or performance-enhancing asset restructuring activities. By pointing out the earnings management and restructuring effects of the Chinese delisting regime, we may inform policy makers of the economic consequences of an earnings-based regime. This adds to prior evidence on the effects of marketbased delisting thresholds. In addition, the study highlights that the earnings-based delisting regulation does not create a level playing field, since state-controlled firms are at an advantage to use more government-led asset restructurings through state-owned shareholders in order to avoid delisting.
Language
English
Source (journal)
Corporate governance : an international review. - Oxford, 1991, currens
Publication
Oxford : 2010
ISSN
0964-8410 [print]
1467-8683 [online]
Volume/pages
18:5(2010), p. 438-456
ISI
000281854600005
Full text (Publisher's DOI)
Full text (publisher's version - intranet only)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 20.09.2010
Last edited 14.07.2017
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