Earnings management and the role of the audit committee: an investigation of the influence of cross-listing and government officials on the audit committee

Teng, Lin, Hutchinson, Marion R., & Percy, Majella (2015) Earnings management and the role of the audit committee: an investigation of the influence of cross-listing and government officials on the audit committee. Journal of Management and Governance, 19(1), pp. 197-227.

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Abstract

This paper extends research on the corporate governance practices of transitional economies by examining whether the ability of the audit committee to constrain earnings management in Chinese firms is associated with the listing environment and the presence of government officials on the audit committee. Despite considerable regulatory reforms by the Chinese Securities Regulatory Commission, there remain incentives for Chinese firms to manage earnings. However, government initiatives to encourage domestic firms to cross-list on the Hong Kong Stock Exchange are accompanied by improved governance. We find that the expertise and independence of the audit committee for cross-listed (CL) Chinese firms are associated with lower abnormal accruals, our measure of earnings management. Both domestic only listed firms and CL Chinese firms appoint government officials as independent members on the audit committee. However, due to the political connection between government officials and the controlling shareholder (the State), these appointments can severely mitigate audit committee independence. Subsequently, we find a significant and positive association between audit committee independence and experience and earnings management when there are government officials on the audit committee.

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ID Code: 64211
Item Type: Journal Article
Refereed: Yes
Keywords: Audit committee, Earnings management, Corporate governance, Cross-listing
DOI: 10.1007/s10997-013-9284-3
ISSN: 1572-963X
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BUSINESS AND MANAGEMENT (150300)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Copyright Owner: Copyright 2013 Springer Science+Business Media
Deposited On: 11 Nov 2013 23:51
Last Modified: 13 Feb 2015 01:37

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