This study investigated the relationship between the COVID-19 outbreak and the Chinese listed firms’ earnings management practices. It also examined how this relationship was moderated by the Chinese listed firms’ corporate social responsibility (CSR) and the external corporate governance mechanism. The data in this study were mainly retrieved from the China Stock Market and Accounting Research (CSMAR) database and the Chinese Research Data Services Platform (CNRDS). The final sample contained 2,029 A-share firms listed in the Shanghai and Shenzhen Stock Exchanges, which released financial reports during the pandemic in 2020. The study applied the performance-adjusted Jones and the modified Jones model to calculate accrual-based earnings. To estimate the real activity-based earnings, this study used the following three measurements: The absolute value of the abnormal cash flow from operations, the absolute value of the abnormal production costs, and the absolute value of the abnormal discretionary expenditures. The results of this study indicated an increase in accrual-based earnings management (AEM) and a significant decline in real activity-based earnings management (REM), in firms in the most severely affected regions. In these regions, both AEM and REM were less pronounced for the firms with a higher CSR performance than those with a lower CSR performance. Moreover, firms audited by the Big 10 auditors were less likely to manipulate earnings through AEM or REM.
Key words: COVID-19, earnings management, corporate social responsibility (CSR), big 10 auditors.
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