Title

Investor legal protection and earnings management : a study of Chinese H-shares and Hong Kong shares

Document Type

Journal article

Source Publication

Journal of Accounting and Public Policy

Publication Date

9-1-2013

Volume

32

Issue

5

First Page

392

Last Page

409

Publisher

Elsevier Inc.

Abstract

Under the unique "one country, two systems" arrangement, the more stringent investor protection rules in Hong Kong are not enforceable in firms that are incorporated in China but listed on the Hong Kong stock exchange (H-shares). As such, H-shares and other local Hong Kong firms are subject to different investor protection regimes in the same stock market. We find that H-shares are associated with higher earnings management than local Hong Kong firms after controlling for disparity in economic development, types of controlling shareholders and other factors. More importantly, this relationship is weaker after China implemented the Securities Law in 1999. The results are robust after considering the dual-listing status of H-shares and board characteristics. These results provide direct evidence showing the effect of investor legal protection on financial reporting quality.

DOI

10.1016/j.jaccpubpol.2013.06.004

Print ISSN

02784254

E-ISSN

18732070

Publisher Statement

Copyright © 2013 Elsevier Inc.

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Full-text Version

Publisher’s Version

Recommended Citation

Fung, S. Y., Su, L. N., & Gul, R. J. (2013). Investor legal protection and earnings management: A study of Chinese H-shares and Hong Kong shares. Journal of Accounting and Public Policy, 32(5), 392-409. doi: 10.1016/j.jaccpubpol.2013.06.004