Split-share reform and earnings management: evidence from China

Haiyan Jiang, Ahsan Habib*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)


This paper investigates the impact of split-share structure reform on earnings management in China. A unique institutional feature of China was the co-existence of two types of share that endowed all shareholders with equal voting and cash flow rights but different tradability. This split-share structure significantly constrained the tradability of shares that led the Chinese Securities Regulatory Commission to make it mandatory for the conversion of non-tradable shares into tradable shares from 2006 onwards. We investigate whether such a conversion has any effect on information quality through reduced earnings manipulation. We specifically examine the incentives for earnings management during the reform-transition period. A unique feature of the split-share reform has been the requirement for non-tradable share holders to compensate the tradable share holders. We argue that the rational response from the non-tradable share holders would be to pay a lower consideration to tradable share holders by portraying a favorable picture through income-increasing earnings management. We also test for the effect of an increase in tradable shares on earnings management during the reform-transition and post-reform period.

Original languageEnglish
Pages (from-to)120-127
Number of pages8
JournalAdvances in Accounting
Issue number1
Publication statusPublished - 1 Jun 2012
Externally publishedYes


  • China
  • Earnings management
  • Split-share reform
  • Tradable shares


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