OWNERSHIP STRUCTURE AND EARNINGS PERCEPTION MANAGEMENT IN CHINESE IPOs

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Walter Aerts, Peng Cheng

DOI:10.22495/cocv6i4c4p1

Abstract

We examine the impact of ownership structure on two distinct investor perception management processes: earnings management and explanatory impression management with regard to earningsrelated outcomes. Using detailed content analysis of earnings explanations in the MDA (Management Discussion and Analysis) section of 104 recent Chinese IPOs, we find that firms exhibit intense assertive verbal behavior in framing positive earnings outcomes. Ownership structure marginally affects both the amount of assertive causal tactics used and the assertive bias in the causal disclosures. However, the effect of ownership structure is more evident for earnings management propensity Earnings management propensity is significantly affected by the nature of the controlling shareholder. This effect is intensified by the size of shareholdings of the controlling shareholder.

Keywords: Earnings Management, Explanatory Impression Management, Ownership Structure, Chinese IPOs

How to cite this paper: Aerts, W., & Cheng, P. (2009). Ownership structure and earnings perception management in Chinese IPOs. Corporate Ownership & Control, 6(4-4), 424-437. http://doi.org/10.22495/cocv6i4c4p1