Topic: The Quality of Financial Reporting in China

Time:  May 30, 2008（Friday）3：00—4：30 PM     

Venue:  Room 513, Jiageng Bld 2

Chair：Zhe Shen, assistant professor in finance, IFAS

Abstract：

This study uses restatements to reveal the low quality of past accounting information

reported within China’s capital market. We show that up to a quarter of listed firms in

Mainland China explicitly admitted the low quality of financial information by

restating their previous financial reports between 1999 and 2005. Many of these firms

manage their earnings mainly via below-the-line items to avoid losses and promote

survival, rather than to support refinancing goals. Such low quality of financial

reporting is more likely among firms that have weaker profitability and a shareholder

base that is state-controlled, with diffused ownership and a relatively low proportion of

shares held by institutional investors. Furthermore, we find the market to be relatively

insensitive to such admission. Investors’ reaction captures only the earnings

information of the current reported year, rather than also reflecting the concurrently

revealed correction of past financial reporting. However, the equity market does not

totally ignore the earnings information, as perceived by many. Investors’ reliance on

earnings is just low relative to the mature U.S. market. These findings demonstrate that

accounting credibility in China has low value; providing low-quality financial

information bears little cost, since various market mechanisms fail to deter such

behavior. Nevertheless, the continuous effort by regulators to enhance listed firms’

quality of financial information and disclosure is still fruitful. The frequency of

restatements over our sample period is decreasing, which reinforces the current

regulatory prospects and strategies for further improving China’s capital markets.

Presenter Introduction：

Dr. Wu  got her B. A. of International Economics from Peking University, M. A. of Economics from Tufts University and Ph. D. of Accounting from New York University. She is the member of AAA(American Accounting Association) and European Accounting Association.

Download：　paper