RESEARCH ARTICLE
Judicial independence and earnings management
Ellen Jin Jiang,
Xiao Jia,
Ellen Jin Jiang
International Business School, Xi'an Jiaotong Liverpool University, Suzhou, China
Search for more papers by this authorCorresponding Author
Xiao Jia
School of Economics, Huazhong University of Science and Technology, Wuhan, China
Correspondence
Xiao Jia, School of Economics, Huazhong University of Science and Technology, Wuhan, China.
Email: [email protected]
Search for more papers by this authorEllen Jin Jiang,
Xiao Jia,
Ellen Jin Jiang
International Business School, Xi'an Jiaotong Liverpool University, Suzhou, China
Search for more papers by this authorCorresponding Author
Xiao Jia
School of Economics, Huazhong University of Science and Technology, Wuhan, China
Correspondence
Xiao Jia, School of Economics, Huazhong University of Science and Technology, Wuhan, China.
Email: [email protected]
Search for more papers by this authorFirst published: 16 December 2024
Abstract
We investigate the crucial relationship between judicial independence and corporate earnings management, utilising China's staggered judicial delocalisation reform. We establish a causal and negative relationship between the judicial independence of local courts and corporate earnings management. Channel analyses demonstrate that judicial independence limits local government officials' capacity to interfere in corporate decisions and increases the ex post legal risks for information distortion. This effect is particularly pronounced among non-state-owned enterprises and in regions with stronger institutional frameworks. These findings highlight the indispensable role of judicial independence in fortifying the rule of law and reducing corporate information distortion.
Open Research
DATA AVAILABILITY STATEMENT
The data that support the findings of this study are available from China Stock Market and Accounting Research (CSMAR) database. Restrictions apply to the availability of these data, which were used under license for this study. Data are available at https://data.csmar.com with the permission of CSMAR.
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