High-speed rail network and earnings management techniques usage trade-off: the moderating effects of governance and religion

Abstract

Purpose: this study investigates the impact of the development of high-speed rail network (HSR) on earnings management, especially on the trade-off between the usage of accruals-based earnings management (AM) and real earnings management (RM) techniques, and consequently, examines the extent to which the HSR network–earnings management nexus is moderated by governance and religion factors.

Design/methodology/approach: using a sample of Chinese A-listed firms over a 11-year period, this study uses regression techniques as the baseline methodology, while controlling for industry and year fixed-effects. We also employ endogeneity tests (including instrumental variable method, Generalized Methods of Moments (GMM) estimation, and difference-in-difference (DID)) and different robustness checks.

Findings: the key findings are threefold. First, the HSR network development reduces AM. This suggests that the presence of HSR network is effective in reducing information asymmetry. Second, the use of RM technique increases with the HSR network development. This indicates that managers do not seem to engage in less earnings management with the HSR network development, but instead appear to switch from the easy-to-detect AM to the more costly RM approach. Finally, the HSR network and earnings management nexus is moderated by governance and religion factors.

Originality/value: this study provides new evidence on the trade-off between AM and RM by managers, and pioneers in examining the impacts of governance and religion factors on the relationship between HSR network and trade-off of earnings management techniques.

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ORCID for Collins Ntim: orcid.org/0000-0002-1042-4056

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