Does the reputation mechanism of media coverage affect earnings management?

Does the reputation mechanism of media coverage affect earnings management? PurposeThis paper aims to investigate the relationship between earnings management and media reports, assess the roles played by the media in determining the reputation mechanism and examine whether the media has an influence on executives’ behavior in the case of earnings management.Design/methodology/approachThis paper uses Chinese A-share listed firms from the period 2008 to 2012 to test the research questions using regression analyses.FindingsAlthough the Chinese Stock Markets are still immature compared to those of developed countries, the media seems to play a role in affecting executives’ decisions about dabbling in earnings management. Specifically, firms receiving more media attention are more likely to undertake earnings management. Furthermore, negative media reports result in even higher levels of earnings management activities, indicating that managers tend to use earnings management to achieve earnings goals to reduce or relieve the pressure they feel from the media and to remedy any reputation loss. Moreover, the authors have found that firms whose CEOs have higher reputations are more likely to manage earnings and they are more likely to be affected by negative media reports. Similar results were found for state-owned enterprises (SOEs).Originality/valueThis study analyzes how the level and tone of media coverage affect earnings management rather than just assessing the overall effect of media coverage on earnings management. This paper verifies that the reputation mechanism of the media works in China, but it leads to different results than those experienced in developed countries. Reputational benefits have been introduced into the equation for measuring the governance effect of the media to derive a more in-depth analysis of the reputation mechanism. This paper is among the first to link news coverage and state ownership with earnings management. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Chinese Management Studies Emerald Publishing

Does the reputation mechanism of media coverage affect earnings management?

Chinese Management Studies, Volume 10 (4): 30 – Nov 7, 2016

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1750-614X
DOI
10.1108/CMS-08-2016-0177
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper aims to investigate the relationship between earnings management and media reports, assess the roles played by the media in determining the reputation mechanism and examine whether the media has an influence on executives’ behavior in the case of earnings management.Design/methodology/approachThis paper uses Chinese A-share listed firms from the period 2008 to 2012 to test the research questions using regression analyses.FindingsAlthough the Chinese Stock Markets are still immature compared to those of developed countries, the media seems to play a role in affecting executives’ decisions about dabbling in earnings management. Specifically, firms receiving more media attention are more likely to undertake earnings management. Furthermore, negative media reports result in even higher levels of earnings management activities, indicating that managers tend to use earnings management to achieve earnings goals to reduce or relieve the pressure they feel from the media and to remedy any reputation loss. Moreover, the authors have found that firms whose CEOs have higher reputations are more likely to manage earnings and they are more likely to be affected by negative media reports. Similar results were found for state-owned enterprises (SOEs).Originality/valueThis study analyzes how the level and tone of media coverage affect earnings management rather than just assessing the overall effect of media coverage on earnings management. This paper verifies that the reputation mechanism of the media works in China, but it leads to different results than those experienced in developed countries. Reputational benefits have been introduced into the equation for measuring the governance effect of the media to derive a more in-depth analysis of the reputation mechanism. This paper is among the first to link news coverage and state ownership with earnings management.

Journal

Chinese Management StudiesEmerald Publishing

Published: Nov 7, 2016

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