Earnings Management Effects of IFRS Adoption and Ownership Structure: Evidence from China

Abstract

We examine the effect of IFRS adoption on earnings management in China. We compare the direction and magnitude of earnings management before and after IFRS adoption, and examine whether the earnings management is associated with ownership structure before and after IFRS adoption in China. We focus on 4,073 firm-years listed in SSE during the period of 2002-2009. Results are summarized as follows. First, total accruals and discretionary accruals after IFRS adoption is greater than before IFRS adoption period. Also, absolute total accruals and absolute discretionary accruals after IFRS adoption is greater than before IFRS adoption period. So, both the direction and size of accruals after IFRS adoption are greater than before IFRS adoption period, These results mean that Chinese firms do more earnings management after IFRS adoption than before IFRS adoption period. Second, earnings management effect of ownership structure measured by tradable stock ratio before and after IFRS adoption is not significantly different. But this result need to be investigated by future research because the tradable stock ratio changes rapidly before and after IFRS adoption period, so the earnings management effect of tradable stock ratio can be mixed by IFRS adoption.