Premium
Economic policy uncertainty exposure and earnings management: evidence from China
Author(s) -
Cui Xin,
Yao Shouyu,
Fang Zhenming,
Wang Hua
Publication year - 2021
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12722
Subject(s) - leverage (statistics) , earnings , earnings management , china , cash flow , volatility (finance) , business , financial distress , monetary economics , economics , economic policy , financial system , finance , political science , machine learning , computer science , law
We investigate the impact of economic policy uncertainty (EPU) exposure on the earnings management behaviour of Chinese firms. We find a significantly positive relation between EPU exposure and firms’ earnings management. In addition, the EPU exposure effect is more pronounced for firms with weaker external monitoring mechanisms. We also find that the financial leverage and growth rate of individual stocks have significant predictive ability for EPU exposure. When we examine the potential mechanisms linking EPU exposure to earnings management, we find that financial distress is the dominant mechanism for firms with high leverage, while it is cash flow volatility for the high‐growth firms.