Propping through related party transactions

Propping through related party transactions Based on a sample of Chinese listed firms from 1998 through 2002, this paper documents that listed firms prop up earnings by using abnormal related sales to their controlling owners. Such related sales propping is more prevalent among state-owned firms and in regions with weaker economic institutions. We also find that these abnormal related sales are not entirely accrual-based but can be cash-based as well, and they serve as a substitute rather than complement to accruals management for meeting earnings targets. Since these abnormal related sales can be cash-based, there is significant cash transfer via related lending from listed firms back to controlling owners after the propping. However, no cash transfer via related lending is found to be associated with accruals earnings management. Review of Accounting Studies Springer Journals

Propping through related party transactions

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Springer US
Copyright © 2008 by Springer Science+Business Media, LLC
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
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