Real Earnings Management Through Sales Manipulation and Firm Performance: Evidence from China

Abstract

The purpose of this study is to reveal the relationship between real earnings management through sales manipulation and firm performance in Chinese A-listed companies. We analyze abnormal operating cash flows to identify real earnings management through sales manipulation. Fixed-effect panel data from 1998 to 2016 are used for the regressions. The results indicate that ROA has a significant negative relationship with real earnings management through sales manipulation. However, ROE does not have a significant relationship with sales manipulation because of the Chinese Securities Regulatory Commission’s (CSRC) threshold regulation. This study reveals the relationship between REM and ROA and ROE in Chinese A-listed firms, and creates a good reference for future studies. China is the largest developing country, and its stock market attracts investors from around the world.