IDEAS home Printed from https://ideas.repec.org/a/bla/bstrat/v32y2023i7p5025-5043.html
   My bibliography  Save this article

How does investor attention affect energy firms' managerial opportunistic behavior? New evidence from China

Author

Listed:
  • Wei Cao
  • Martina Linnenluecke
  • Jinfang Tian
  • Rui Xue
  • Huan Yang

Abstract

The energy sector plays a crucial role in facilitating the low‐carbon energy transition. However, in the absence of appropriate environmental regulation, managerial opportunistic behavior in energy firms can manipulate ethical investor perceptions and hinder the real transition process towards clean energy. Using Chinese listed energy firms as the research setting, this paper examines the impact of investor attention on energy firms' earnings management practices. In both clean and traditional energy firms, the results show a significant U‐shaped association between investor attention and earnings management, with the U‐shaped curve for clean energy firms being smoother. This U‐shaped relationship is more pronounced in energy firms with larger size and weaker external monitoring. Moreover, the mediating analysis shows that internal control quality transmits the impact of investor attention onto earnings management practices in the energy sector. Our key findings remain robust to a battery of robustness tests and endogeneity controls. Therefore, given the growing attention on the energy sector, this study extends the existing literature on energy firms' managerial opportunistic behavior by analyzing the nonlinear effect for investor attention and provides practical implications for curbing energy firms' managerial opportunistic activities and guiding managerial attention towards making real sustainable investments, thereby promoting clean energy transition and sustainable development.

Suggested Citation

  • Wei Cao & Martina Linnenluecke & Jinfang Tian & Rui Xue & Huan Yang, 2023. "How does investor attention affect energy firms' managerial opportunistic behavior? New evidence from China," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 5025-5043, November.
    • Handle: RePEc:bla:bstrat:v:32:y:2023:i:7:p:5025-5043
    DOI: 10.1002/bse.3406
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/bse.3406
    Download Restriction: no
    File URL: https://libkey.io/10.1002/bse.3406?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Lo, Kin & Ramos, Felipe & Rogo, Rafael, 2017. "Earnings management and annual report readability," Journal of Accounting and Economics, Elsevier, vol. 63(1), pages 1-25.
    2. Allison Koester & Russell Lundholm & Mark Soliman, 2016. "Attracting Attention in a Limited Attention World: Exploring the Causes and Consequences of Extreme Positive Earnings Surprises," Management Science, INFORMS, vol. 62(10), pages 2871-2896, October.
    3. Christian Leuz, 2003. "IAS Versus U.S. GAAP: Information Asymmetry–Based Evidence from Germany's New Market," Journal of Accounting Research, Wiley Blackwell, vol. 41(3), pages 445-472, June.
    4. Kilian Huber, 2018. "Disentangling the Effects of a Banking Crisis: Evidence from German Firms and Counties," American Economic Review, American Economic Association, vol. 108(3), pages 868-898, March.
    5. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-651.
    6. Jung, Seung Hwan & Feng, Tianjun, 2020. "Government subsidies for green technology development under uncertainty," European Journal of Operational Research, Elsevier, vol. 286(2), pages 726-739.
    7. Ming Dong & David Hirshleifer & Scott Richardson & Siew Hong Teoh, 2006. "Does Investor Misvaluation Drive the Takeover Market?," Journal of Finance, American Finance Association, vol. 61(2), pages 725-762, April.
    8. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    9. Xia Chen & Qiang Cheng & Ying Hao & Qiang Liu, 2020. "GDP growth incentives and earnings management: evidence from China," Review of Accounting Studies, Springer, vol. 25(3), pages 1002-1039, September.
    10. Garel, Alexandre & Martin-Flores, Jose M. & Petit-Romec, Arthur & Scott, Ayesha, 2021. "Institutional investor distraction and earnings management," Journal of Corporate Finance, Elsevier, vol. 66(C).
    11. Jones, Jj, 1991. "Earnings Management During Import Relief Investigations," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 193-228.
    12. Li, Feng, 2008. "Annual report readability, current earnings, and earnings persistence," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 221-247, August.
    13. Hanwen Chen & Jeff Zeyun Chen & Gerald J. Lobo & Yanyan Wang, 2011. "Effects of Audit Quality on Earnings Management and Cost of Equity Capital: Evidence from China," Contemporary Accounting Research, John Wiley & Sons, vol. 28(3), pages 892-925, September.
    14. Rodríguez-Pérez, Gonzalo & van Hemmen, Stefan, 2010. "Debt, diversification and earnings management," Journal of Accounting and Public Policy, Elsevier, vol. 29(2), pages 138-159, March.
    15. Fan, Haichao & Peng, Yuchao & Wang, Huanhuan & Xu, Zhiwei, 2021. "Greening through finance?," Journal of Development Economics, Elsevier, vol. 152(C).
    16. Giovanna Attanasio & Nadia Preghenella & Alberto Felice De Toni & Cinzia Battistella, 2022. "Stakeholder engagement in business models for sustainability: The stakeholder value flow model for sustainable development," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 860-874, March.
    17. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2007. "How ownership and corporate governance influence chief executive pay in China's listed firms," Journal of Business Research, Elsevier, vol. 60(7), pages 776-785, July.
    18. Dunne, Neil J. & Brennan, Niamh M. & Kirwan, Collette E., 2021. "Impression management and Big Four auditors: Scrutiny at a public inquiry," Accounting, Organizations and Society, Elsevier, vol. 88(C).
    19. Ivo Hristov & Andrea Appolloni, 2022. "Stakeholders' engagement in the business strategy as a key driver to increase companies' performance: Evidence from managerial and stakeholders' practices," Business Strategy and the Environment, Wiley Blackwell, vol. 31(4), pages 1488-1503, May.
    20. Li, Jie, 2021. "Economic policy uncertainty, contracting frictions and imports sourcing decisions," Economics Letters, Elsevier, vol. 200(C).
    21. Christian Leuz, 2003. "IAS Versus U.S. GAAP: Information Asymmetry–Based Evidence from Germany's New Market," Journal of Accounting Research, Wiley Blackwell, vol. 41(3), pages 445-472, June.
    22. Fateh Saci & Sajjad M. Jasimuddin & Ariful Hoque, 2021. "Does corporate culture matter to earnings management? Evidence from Chinese Time‐honoured Brand firms," Australian Economic Papers, Wiley Blackwell, vol. 60(3), pages 435-465, September.
    23. Gugler, Klaus & Haxhimusa, Adhurim & Liebensteiner, Mario & Schindler, Nora, 2020. "Investment opportunities, uncertainty, and renewables in European electricity markets," Energy Economics, Elsevier, vol. 85(C).
    24. Titman, Sheridan & Wei, Chishen & Zhao, Bin, 2022. "Corporate actions and the manipulation of retail investors in China: An analysis of stock splits," Journal of Financial Economics, Elsevier, vol. 145(3), pages 762-787.
    25. Stefano Dellavigna & Joshua M. Pollet, 2009. "Investor Inattention and Friday Earnings Announcements," Journal of Finance, American Finance Association, vol. 64(2), pages 709-749, April.
    26. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    27. Pekovic, Sanja & Grolleau, Gilles & Mzoughi, Naoufel, 2018. "Environmental investments: Too much of a good thing?," International Journal of Production Economics, Elsevier, vol. 197(C), pages 297-302.
    28. Ferrell, Allen & Liang, Hao & Renneboog, Luc, 2016. "Socially responsible firms," Journal of Financial Economics, Elsevier, vol. 122(3), pages 585-606.
    29. Ana Simpson, 2013. "Does Investor Sentiment Affect Earnings Management?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 40(7-8), pages 869-900, September.
    30. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    31. Dayuan Li & Min Huang & Shenggang Ren & Xiaohong Chen & Lutao Ning, 2018. "Environmental Legitimacy, Green Innovation, and Corporate Carbon Disclosure: Evidence from CDP China 100," Journal of Business Ethics, Springer, vol. 150(4), pages 1089-1104, July.
    32. Yongtao Hong & Fariz Huseynov & Wei Zhang, 2014. "Earnings Management and Analyst Following: A Simultaneous Equations Analysis," Financial Management, Financial Management Association International, vol. 43(2), pages 355-390, June.
    33. Liu, Prof Haiyue & Wang, Yile & Xue, Dr Rui & Linnenluecke, Prof Martina & Cai, Dr Cynthia Weiyi, 2022. "Green Commitment and Stock Prick Crash Risk," Finance Research Letters, Elsevier, vol. 47(PA).
    34. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    35. Elisabeth Kempf & Alberto Manconi & Oliver Spalt, 2017. "Distracted Shareholders and Corporate Actions," The Review of Financial Studies, Society for Financial Studies, vol. 30(5), pages 1660-1695.
    36. Ali, Ashiq & Zhang, Weining, 2015. "CEO tenure and earnings management," Journal of Accounting and Economics, Elsevier, vol. 59(1), pages 60-79.
    37. Yao, Shouyu & Pan, Yuying & Sensoy, Ahmet & Uddin, Gazi Salah & Cheng, Feiyang, 2021. "Green credit policy and firm performance: What we learn from China," Energy Economics, Elsevier, vol. 101(C).
    38. Burgstahler, David & Dichev, Ilia, 1997. "Earnings management to avoid earnings decreases and losses," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 99-126, December.
    39. Anette Hallin & Tina Karrbom‐Gustavsson & Peter Dobers, 2021. "Transition towards and of sustainability—Understanding sustainability as performative," Business Strategy and the Environment, Wiley Blackwell, vol. 30(4), pages 1948-1957, May.
    40. Li, Yulei & Hu, Shiyang & Zhang, Shu & Xue, Rui, 2023. "The Power of the Imperial Envoy: The Impact of Central Government Onsite Environmental Supervision Policy on Corporate Green Innovation," Finance Research Letters, Elsevier, vol. 52(C).
    41. Josef Schroth, 2018. "Managerial Compensation and Stock Price Manipulation," Journal of Accounting Research, Wiley Blackwell, vol. 56(5), pages 1335-1381, December.
    42. Ugur Lel, 2019. "The role of foreign institutional investors in restraining earnings management activities across countries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(6), pages 895-922, August.
    43. Arya, Anil & Mittendorf, Brian, 2007. "The interaction among disclosure, competition between firms, and analyst following," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 321-339, July.
    44. Liu, Ruiming & Si, Haiping & Miao, Miao, 2022. "One false step can make a great difference: Does corporate litigation cause the exit of the controlling shareholder?," Journal of Corporate Finance, Elsevier, vol. 73(C).
    45. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
    46. Nanda Fito Mela & Adhitya Agri Putra, 2020. "Oil Price and Earnings Management: Evidence from Crude Oil and Gas Companies in Indonesian Stock Exchange," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 352-355.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wu, Hao & Song, Yunling, 2024. "Does performance of carbon neutrality affect firm value?," Finance Research Letters, Elsevier, vol. 63(C).
    2. Wu, Sihong & Michailova, Snejina & Fan, Di, 2025. "Legitimacy under pressure: Energy firms’ expansion in countries with weak environmental performance," World Development, Elsevier, vol. 185(C).
    3. Song, Yunling & Wu, Hao & Ma, Yan, 2023. "Does ESG performance affect audit pricing? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 90(C).
    4. Zhang, Xingyue & Jiang, Fangxin & Liu, Haizhou & Liu, Ruizhi, 2023. "Green finance, managerial myopia and corporate green innovation: Evidence from Chinese manufacturing listed companies," Finance Research Letters, Elsevier, vol. 58(PB).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alexandre Garel & Jose Martin-Flores & Arthur Petit-Romec & Ayesha Scott, 2021. "Institutional investor distraction and earnings management," Post-Print hal-03096196, HAL.
    2. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    3. Garel, Alexandre & Martin-Flores, Jose M. & Petit-Romec, Arthur & Scott, Ayesha, 2021. "Institutional investor distraction and earnings management," Journal of Corporate Finance, Elsevier, vol. 66(C).
    4. Dung Viet Tran & M. Kabir Hassan & Reza Houston, 2020. "Discretionary loan loss provision behavior in the US banking industry," Review of Quantitative Finance and Accounting, Springer, vol. 55(2), pages 605-645, August.
    5. Haga, Jesper & Ittonen, Kim & Tronnes, Per C. & Wong, Leon, 2018. "Is earnings management sensitive to discount rates?," Journal of Accounting Literature, Elsevier, vol. 41(C), pages 75-88.
    6. Harakeh, Mostafa & El-Gammal, Walid & Matar, Ghida, 2019. "Female directors, earnings management, and CEO incentive compensation: UK evidence," Research in International Business and Finance, Elsevier, vol. 50(C), pages 153-170.
    7. Hans B. Christensen & Luzi Hail & Christian Leuz, 2021. "Mandatory CSR and sustainability reporting: economic analysis and literature review," Review of Accounting Studies, Springer, vol. 26(3), pages 1176-1248, September.
    8. Eliwa, Yasser & Haslam, Jim & Abraham, Santhosh, 2021. "Earnings quality and analysts’ information environment: Evidence from the EU market," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    9. Tian, Jinfang & Sun, Siyang & Cao, Wei & Bu, Di & Xue, Rui, 2024. "Make every dollar count: The impact of green credit regulation on corporate green investment efficiency," Energy Economics, Elsevier, vol. 130(C).
    10. Muhammad Kaleem Khan & Yixuan Qin & Chengsi Zhang, 2022. "Financial structure and earnings manipulation activities in China," The World Economy, Wiley Blackwell, vol. 45(8), pages 2593-2621, August.
    11. William Grieser & Charles J. Hadlock & Joshua R. Pierce, 2021. "Doing good when doing well: evidence on real earnings management," Review of Accounting Studies, Springer, vol. 26(3), pages 906-932, September.
    12. Florian Eugster & Alexander F. Wagner, 2021. "Earning investor trust: The role of past earnings management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 269-307, January.
    13. Oz, Seda, 2024. "The impact of terrorist attacks and mass shootings on earnings management," The British Accounting Review, Elsevier, vol. 56(3).
    14. Fargher, Neil & Wee, Marvin, 2019. "The impact of Ball and Brown (1968) on generations of research," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 55-72.
    15. Arslan-Ayaydin, Özgür & Chen, Shimin & Ni, Serene Xu & Thewissen, James, 2022. "Is cross-listing a panacea for improving earnings quality? The case of H- and B-share firms in China," International Review of Financial Analysis, Elsevier, vol. 81(C).
    16. Wanli Li & Tiantian Yan & Yue Li & Ziqiao Yan, 2023. "Earnings management and CSR report tone: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1883-1902, July.
    17. Nguyen, Quynh & Kim, Maria H. & Ali, Searat, 2024. "Corporate governance and earnings management: Evidence from Vietnamese listed firms," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 775-801.
    18. Alhababsah, Salem & Alhaj-Ismail, Alaa, 2023. "Does shared tenure between audit committee chair and engagement partner affect audit outcomes? Evidence from the UK," The British Accounting Review, Elsevier, vol. 55(2).
    19. Francesco Capalbo & Marco Sorrentino & Margherita Smarra, 2018. "Earnings Management and State Ownership: A Literature Review," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(6), pages 117-117, April.
    20. Obeng, Victoria A. & Ahmed, Kamran & Miglani, Seema, 2020. "Integrated reporting and earnings quality: The moderating effect of agency costs," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:bstrat:v:32:y:2023:i:7:p:5025-5043. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-0836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.