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Allowance for Doubtful Accounts and Earning Management: An Empirical Study of Chinese Listed Companies

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  • Christos N. Christodoulou-Volos

Abstract

This empirical study aims to reveal that companies conduct earnings management by the fuzzy zone of allowance policy. It investigates the interrelationship between the allowance for doubtful accounts and earning management with the use of three hypotheses. The data used are from Chinese listed companies for the period 2008- 2017. The Chinese accounting standards have experienced two major changes and because of that, this study is divided into two parts. After the modification of 2014, the allowance for doubtful accounts and the reversal faced a huge difference comparing with previous rules. The findings prove that before 2014, Chinese listed companies manipulated the earnings with the help of allowance for doubtful accounts. However, afterwards the possibility of earning management deteriorates, showing the effectiveness of the fair value accounting standard improvement. Furthermore, return on equity shows less significant relationship with allowance for doubtful accounts. Although a previous study considers debt contracts enhances the negative relationship with allowance for doubtful accounts, the findings show instead a positive one. This simply means that high leverage ratio creates higher allowance for doubtful accounts. JEL classification numbers: G28, M41, C20. Keywords: Earning Management; Allowance for Doubtful Accounts; Regression Analysis.

Suggested Citation

  • Christos N. Christodoulou-Volos, 2020. "Allowance for Doubtful Accounts and Earning Management: An Empirical Study of Chinese Listed Companies," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 9(3), pages 1-4.
    • Handle: RePEc:spt:fininv:v:9:y:2020:i:3:f:9_3_4
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    References listed on IDEAS

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    1. Scott B. Jackson & Xiaotao (Kelvin) Liu, 2010. "The Allowance for Uncollectible Accounts, Conservatism, and Earnings Management," Journal of Accounting Research, Wiley Blackwell, vol. 48(3), pages 565-601, June.
    2. McNichols, Maureen F., 2000. "Research design issues in earnings management studies," Journal of Accounting and Public Policy, Elsevier, vol. 19(4-5), pages 313-345.
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    More about this item

    Keywords

    earning management; allowance for doubtful accounts; regression analysis.;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General

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