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

journal contribution
posted on 2013-09-01, 00:00 authored by Simon FungSimon Fung, L N Su, Jay GulJay Gul
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.

History

Journal

Journal of accounting and public policy

Volume

32

Issue

5

Pagination

392 - 409

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

0278-4254

Language

eng

Publication classification

C Journal article; C1.1 Refereed article in a scholarly journal

Copyright notice

2013, Elsevier

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