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

Simon YuKit FUNG, Lixin (Nancy) SU, Reza Jashen GUL

Research output: Journal PublicationsJournal Article (refereed)

8 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)392-409
Number of pages18
JournalJournal of Accounting and Public Policy
Volume32
Issue number5
Early online date13 Jul 2013
DOIs
Publication statusPublished - Sep 2013
Externally publishedYes

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