Journal of Finance and Economics

Journal of Finance and Economics

ISSN: 2291-4951 (Print)    ISSN: 2291-496X (Online)

Volume 3 (2015), No. 4, Pages 38-68

DOI: 10.12735/jfe.v3i4p38

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The Association between Earnings Persistence and Internal Control Quality: Evidence from China

Mei Feng Lin1  Po-Hsiang Yu2 

1Department of Accounting, National Changhua University, Changhua City, Taiwan
2Department of Accounting, National Chengchi University, Taipei City, Taiwan

URL: https://doi.org/10.12735/jfe.v3i4p38

To Cite this Article     Article Views: 810     Downloads: 419  Since deposited on 2015-12-17

Abstract

We investigated the association between internal control quality (ICQ) and earnings persistence (EP) in the Chinese capital market. Specifically, we examined how ICQ exerts an influence on EP, using data from listed A-share corporations in the Shanghai Stock Exchange and the Shenzhen Stock Exchange, from 2008 to 2011. We assumed that a more favorable internal control environment could prevent managers and employees from exploiting company resources or embezzling company property, preventing managers from using opportunistic earnings management (accrual-based or real earnings management) and motivating them to strive for the corporation. The company would thus be more likely to operate efficiently and effectively, resulting in higher EP. Consistent with this assumption, our findings suggest that firms with better ICQ have less real activities manipulation, and that a lesser extent of real earnings management results in higher EP.

JEL Classifications: M41

Keywords: internal control, earnings persistence, accruals quality, real activities manipulation

To Cite this Article: Lin, M. F., & Yu, P. H. (2015). The association between earnings persistence and internal control quality: Evidence from China. Journal of Finance and Economics, 3(4), 38-68. https://doi.org/10.12735/jfe.v3i4p38

Copyright © Mei Feng Lin & Po-Hsiang Yu

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This article is published under license to Science and Education Centre of North America. This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License.

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The Association between Earnings Persistence and Internal Control Quality: Evidence from China
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