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Corporate site visits, private information communication, and earnings management: evidence from China
Jiang, Yu1; Lei, Adrian C.H.1; Wang, Tao2; Li, Chuntao3
2022-07-28
Source PublicationReview of Accounting and Finance
ABS Journal Level2
ISSN1475-7702
Volume21Issue:4Pages:249-275
Abstract

Purpose: This paper aims to provide new evidence that corporate site visits give institutional investors better opportunities to obtain information and exert monitoring powers, which reduce listed firms’ earnings management. Design/methodology/approach: This paper explores how private communications affect firms’ earnings management by using a sample of institutional investors’ visits to the corporate sites of Chinese listed firms between 2010 and 2018. This study uses the performance-matched Jones model (Kothari et al., 2005) to measure accrual-based earnings management and Roychowdhury’s (2006) method to measure real earnings management. The authors also perform several robustness checks including an alternative measure of accounting accruals, a two-stage instrumental regression and the Heckman two-step approach. Findings: Using a sample of institutional investors’ site visits to Chinese listed firms during the 2010–2018 period, this study finds that institutional investors’ site visits reduce listed firms’ earnings manipulation activities (both accrual-based and real). This association is robust to several checks, including an alternative measure of accounting accruals, a two-stage instrumental regression and the Heckman two-step approach. This study further documents that other private communication approaches such as private in-house meetings and conference calls moderate the effect of site visits. Practical implications: As the Shenzhen Stock Exchange is one of the few stock markets to mandate that listed firms record and disclose their private communication information, this study also has implications for researchers and policymakers who work in other stock markets. Originality/value: To the best of the authors’ knowledge, this study is the first comprehensive study of the impact of private communications on earnings management. This study extends the earnings management literature by examining institutional investors’ information acquisition process and revealing a negative association between their site visits and listed firms’ earnings management. Moreover, this study examines the effects not only on traditional accounting accruals but also on real earnings management. In addition to studies that emphasize the effect of corporate site visits on individuals and market reactions, this study examines the effect of site visits on firms’ financial misbehavior. This study shows that institutional investors’ corporate site visits provide external monitoring that mitigates listed firms’ earnings management behavior.

KeywordCorporate Site Visits Earnings Management External Monitor Institutional Investor Private Communication
DOI10.1108/RAF-06-2021-0147
URLView the original
Indexed ByESCI
Language英語English
WOS Research AreaBusiness & Economics
WOS SubjectBusiness, Finance
WOS IDWOS:000812344700001
Scopus ID2-s2.0-85132247182
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Cited Times [WOS]:0   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionDEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Corresponding AuthorLei, Adrian C.H.
Affiliation1.Department of Finance and Business Economics, University of Macau, Macao
2.Chinese Academy of Fiscal Sciences, Beijing, China
3.School of Economics, Henan University, Kaifeng, China
First Author AffilicationUniversity of Macau
Corresponding Author AffilicationUniversity of Macau
Recommended Citation
GB/T 7714
Jiang, Yu,Lei, Adrian C.H.,Wang, Tao,et al. Corporate site visits, private information communication, and earnings management: evidence from China[J]. Review of Accounting and Finance,2022,21(4):249-275.
APA Jiang, Yu,Lei, Adrian C.H.,Wang, Tao,&Li, Chuntao.(2022).Corporate site visits, private information communication, and earnings management: evidence from China.Review of Accounting and Finance,21(4),249-275.
MLA Jiang, Yu,et al."Corporate site visits, private information communication, and earnings management: evidence from China".Review of Accounting and Finance 21.4(2022):249-275.
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