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Earnings quality and crash risk in China: an integrated analysis

Author

Listed:
  • Udomsak Wongchoti
  • Ge Tian
  • Wei Hao
  • Yi Ding
  • Hongfeng Zhou

Abstract

Purpose - The authors provide a comprehensive empirical examination on the impact of earnings quality on stock price crash risk in China. Design/methodology/approach - The authors acknowledge and distinguish two-dimensional proxies for earnings quality – accounting-based (earnings management degree) and market-based (earnings transparency) known in accounting and finance literature. Findings - The authors find that both generally indicate that better earnings quality is associated with less crashes. However, extremely high earnings transparency interacted with insider trading profit can also actually exacerbate stock price crashes. Originality/value - This study is the first to highlight the pertinence of accounting-based measures to proxy for earnings quality in a fast-growing emerging market environment such as China.

Suggested Citation

  • Udomsak Wongchoti & Ge Tian & Wei Hao & Yi Ding & Hongfeng Zhou, 2020. "Earnings quality and crash risk in China: an integrated analysis," Journal of Asian Business and Economic Studies, Emerald Group Publishing Limited, vol. 28(1), pages 2-19, July.
    • Handle: RePEc:eme:jabesp:jabes-02-2020-0012
    DOI: 10.1108/JABES-02-2020-0012
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    More about this item

    Keywords

    Stock price crash risk; Earnings quality; China; G32; G34; M41;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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