Earnings manipulation and similarity of annual report disclosure: Evidence from China

Publication Name

Accounting and Finance

Abstract

The Management Discussion and Analysis (MD&A) section is an important component of a company's annual report, where the management team provides a textual analysis of the company's performance for investors. Due to the existence of agency problems, management is likely to mask any earnings manipulation in order to maximise their salary, build a corporate empire or obtain more financing, which will reduce the reliability of the company's financial information. Utilising 13,679 Chinese A-share listed companies from 2008 to 2020, this study examines the correlation between management earnings manipulation and annual report MD&A similarity. We find that earnings manipulation leads to increased MD&A similarity in order to reduce the transmission of useful information and thus stymie investors. As such, we recommend that regulatory authorities should monitor the level of similarity and validity of MD&A disclosures in addition to the authenticity of numerical financial information.

Open Access Status

This publication may be available as open access

Volume

63

Issue

S1

First Page

1137

Last Page

1156

Funding Number

10JZD0019

Funding Sponsor

Ministry of Education of the People's Republic of China

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Link to publisher version (DOI)

http://dx.doi.org/10.1111/acfi.13076