Accounting Seminar（2013-24）

Topic：Mandatory Adoption of International Financial Reporting Standards and Earnings Management: Evidence from China

Speaker: Qiliang Liu,Wuhan University

Discussant:Lina Wu Le Luo , Peking University

Time:: Friday,10 January,10:00-11:30am

Location:Room 217, Guanghua Building 2

Organizer:Department of Accounting, MPAcc GSM, PKU

Abstract：

We investigate the implications of mandatory IFRS adoption by Chinese listed firms for earnings management behavior, and whether those implications vary by type of controlling shareholder. We find that the increased financial reporting flexibility under IFRS provides more earnings management opportunities for firms operating in emerging markets, where investor protection and corporate governance are deficient. We find that whereas the magnitude of discretionary accruals for firms owned by local governments (local SOEs) and private investors (NSOEs) increased after IFRS adoption, it remained unchanged for firms owned by the central government (central SOEs). More interestingly firms changed the forms of earnings management to take advantage of the flexibility under IFRS; they switched from accounting restatements to changing accounting policies and estimates. Evidence on the value relevance of earnings following adoption of IFRS indicates that the informativeness of earnings decreased for local SOEs and for NSOEs, but remained unchanged for central SOEs.

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