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Impact of Foreign Strategic Investors on Earnings Management in Chinese Banks

Author

Listed:
  • Meng-Wen Wu
  • Chung-Hua Shen
  • Chin-Hwa Lu
  • Chia-Chung Chan

Abstract

Chinese authorities hoped that participation of foreign strategic investors (FSIs) could improve the profitability of Chinese banks both quantitatively and qualitatively. While past studies have typically focused on the effect of FSIs on banks' quantitative performance, this paper investigates the quality of profits through earnings management. We use matching theory to consider the selection bias. Our results demonstrate that banks with FSIs have improved the quality of their financial reports because they conducted less loss-avoidance management of earnings, but they engaged in as much management to avoid earnings growth decreases as non-FSI banks did.

Suggested Citation

  • Meng-Wen Wu & Chung-Hua Shen & Chin-Hwa Lu & Chia-Chung Chan, 2012. "Impact of Foreign Strategic Investors on Earnings Management in Chinese Banks," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 115-133, September.
    • Handle: RePEc:mes:emfitr:v:48:y:2012:i:5:p:115-133
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    Citations

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    Cited by:

    1. Ho, Po-Hsin & Lin, Chih-Yung & Tsai, Wei-Che, 2016. "Effect of country governance on bank privatization performance," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 3-18.
    2. Cheng, Maoyong & Zhao, Hong & Zhou, Mingming, 2020. "Foreign Strategic Investors, State Ownership, and Non-interest Activities: Evidence from China," Journal of Financial Stability, Elsevier, vol. 50(C).
    3. Shen, Chung-Hua & Wu, Meng-Wen & Chen, Ting-Hsuan & Fang, Hao, 2016. "To engage or not to engage in corporate social responsibility: Empirical evidence from global banking sector," Economic Modelling, Elsevier, vol. 55(C), pages 207-225.
    4. Yong Tan & Peter Wanke & Jorge Antunes & Ali Emrouznejad, 2021. "Unveiling endogeneity between competition and efficiency in Chinese banks: a two-stage network DEA and regression analysis," Annals of Operations Research, Springer, vol. 306(1), pages 131-171, November.
    5. Maoyong Cheng & Hong Zhao & Mingming Zhou, 2016. "The effects of foreign strategic investors on business models in China’s commercial banks: does ownership structure matter?," Applied Economics, Taylor & Francis Journals, vol. 48(58), pages 5676-5698, December.
    6. René P. Orij & Saif Rehman & Hashim Khan & Faisal Khan, 2021. "Is CSR the new competitive environment for CEOs? The association between CEO turnover, corporate social responsibility and board gender diversity: Asian evidence," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(2), pages 731-747, March.
    7. Wu, Meng-Wen & Shen, Chung-Hua & Lu, Chin-Hwa, 2015. "Do more foreign strategic investors and more directors improve the earnings smoothing? The case of China," International Review of Economics & Finance, Elsevier, vol. 36(C), pages 3-16.
    8. Kant, Chander, 2016. "Are institutions in developing countries malleable?," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 272-289.
    9. Cheng, Maoyong & Geng, Hongyan & Zhang, Junrui, 2016. "Chinese commercial banks: Benefits from foreign strategic investors?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 147-172.

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