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This paper aims to explore how external creditors assess firms’ financial aggressiveness in China.

Using bank loan-specific data, the authors investigate whether firms exhibit greater costs of bank loans when they engage in earnings manipulation and whether this association changes when restrictions on lenders’ compensation are promulgated.

The authors find compelling evidence that bank executives charge higher premiums on firms with accrual earnings management to compensate for additional financial risk but do not charge extra loan prices for firms conducting real earnings management (REM). The authors also find that the enactment of Robust Bank Executive Compensation (REBC) enhances the vigilance of bank executives on the overall client firms’ earnings manipulation, with the exception of REM conducted by state-owned firms.

The authors extend the current literature on the cost of external loans by focusing on bank loans and the influence of REBC. This study offers implications for policymakers in China and other emerging economics to control loan default and financial risk.

This study aims to explore the relationship between social capital and real earnings management (REM).

Using the social capital index from 1990 to 2014, this study investigates whether managers are less likely to carry out real earnings management when firms headquartered in a county with greater social capital and whether this impact will differ according to firm characteristics and the external environment.

Social capital is negatively linked to a firm’s REM, as a manager’s mindset toward misconduct might be more constrained by a better social environment and a lower tendency to undertake real earnings manipulation. Furthermore, we find that the effect of social capital on real earnings management is stronger for firms with geographically concentrated structures, weaker external monitoring, Sarbanes-Oxley Act adoption and greater pressure to meet earnings targets.

This study sheds light on the relation between social capital and accounting decisions by exploring whether social capital can influence real earnings management and provides evidence that social capital has a beneficial impact on reducing certain misbehaviors in financial reporting and that the effect is stronger when a firm has a geographically concentrated structure, weaker external monitoring, SOX adoption and less pressure to meet earnings targets.

This study aims to examine whether Chinese firms increase their concerns about analysts’ earnings forecasts following the split-share structure reform (SSR) in 2005, which removed trading restrictions on approximately 70% of the shares of listed firms.

Using data from 2002 to 2019, the authors empirically test the association between meeting or beating analysts’ earnings expectations and the implementation of SSR.

The authors find that firms are more inclined to meet analysts’ earnings expectations after the introduction of SSR. Further analysis shows that firms guide analysts to walk their forecasts down by manipulating third-quarter earnings, suggesting enhanced value relevance between analysts’ forecasts and third-quarter earnings management in the postreform period.

The findings reveal an undesirable side effect of SSR and suggest that policymakers and regulators should consider and carefully manage the complex relationships between firms and analysts.

In contrast to prior studies that predominantly focus on the positive effects of the reform, this study reveals the side effects of SSR and provides new evidence on the mechanisms of meeting or beating analysts’ earnings expectations.