Does Corporate Governance Constrain Earnings Management? Perceptual Evidence from Accounting Practitioners in China

Abstract

Earnings management remains a stubborn feature of China's capital markets, and the governance mechanisms imported to restrain it have long been suspected of carrying Western form without Western function. Most evidence comes from archival studies that infer manipulation from reported numbers, leaving unexamined the view of the practitioners who watch both the manipulation and the governance response from inside. This study surveyed 272 accounting, finance and auditing professionals familiar with the financial reporting practices of Chinese listed companies, all holding professional qualifications, using twenty Likert items covering four governance areas and three forms of earnings management. Responses were analyzed descriptively through frequency distributions, means, standard deviations and a ranking of items by agreement balance. Item means cluster near the scale midpoint, but the distributions reveal a profession divided rather than indifferent, with roughly a third of respondents on each side of most propositions. The strongest agreement concerns the harm of concentrated ownership and the willingness of independent directors to voice disagreement, while the effectiveness of director monitoring and of large audit firms was net rejected. Practitioners credit independent directors with a voice but not with consequences, and they endorse diagnoses of governance weakness far more readily than claims that any mechanism works. No form of earnings management was perceived as clearly prevalent. That qualified insiders cannot agree on how common these practices are is itself a warning to outside users of Chinese financial statements.