This study explores the association between the COVID-19 outbreak, corporate financial distress and earnings management practices in China. We investigate whether firms took advantage of the downturn in economic conditions during the pandemic to adjust their earnings using different earnings management techniques. Utilising a sample of 1,832 listed firms and underlying theoretical frameworks (i.e., positive accounting and signalling theory), we find that firms were more inclined to manage earnings during the pandemic period. They favoured using the accrual-based rather than the real activity-based earnings management technique. We also find that firms engaged more in income-increasing practices in the shadow of the outbreak. In addition, our results further demonstrate that financially distressed firms were involved in earnings management, particularly accrual-based earnings management. However, compared to privately-owned firms, state-owned enterprises seem to be involved less in earnings management during the COVID-19 pandemic. Findings from this study raise some concerns for policymakers about the credibility of financial reporting information during COVID-19.

Originated from

Aljughaiman, A. A., Nguyen, T. H., Trinh, V. Q., & Du, A. (2023). The COVID-19 Outbreak, Corporate Financial Distress and Earnings Management. International Review of Financial Analysis, 88, 102675. 

https://doi.org/10.1016/j.irfa.2023.102675 

AUTHOR FROM VNU UNIVERSITY OF ECONOMICS AND BUSINESS

Dr. Nguyen Huy Tam is a lecturer in the Faculty of Accounting and Auditing, VNU University of Economics and Business. At the same time, he is also a lecturer at Business School - University of Nottingham (UK). His research interests include accounting, auditing and finance.