The impact of corporate governance on earnings quality in China

Abstract

This paper attempts to find out the relationship between corporate governance and earnings quality using Shanghai and Shenzhen listed companies from 2004 to 2008 as samples. The results demonstrate discretionary accruals, which is negatively correlated with the management compensation but is positively correlated with the independence of the audit committee, the ratio of independent directors and shareholders' rights on equity. The correlation tests in this study only use the part of companies listed on the Shanghai and Shenzhen stock exchanges with complete information. Future research may use a larger database to check the connection between the overall governance quality and earnings quality of listed companies in China. However, the evidence provided by this study supports that in China, stronger corporate governance can better manage the financial accounting process but decrease earnings quality, maybe this gives another idea to think about how to help the future development of a company better.