Academics from the Manchester Accounting and Finance Group (MAFG) are to play a key role in assessing the quality of financial accounts submitted by leading Chinese companies to the Shanghai Stock Exchange.
Professors Edward Lee and Martin Walker, alongside Colin Zeng (pictured), have begun working with Professor Minghua Gao from Beijing Normal University on a major study into the accounts of more than 1,000 publicly quoted companies in the country. MAFG’s main contribution will be to send out questionnaires to the targeted companies, while Professor Gao will conduct most of the face-to-face interviews on the ground.
The research has been driven by the Chinese government’s desire to improve the quality of accounts produced by its leading state-owned companies. As Colin, Lecturer in Accounting, explains: “In the wake of China implementing international accounting standards (IFRS) back in 2007 there has been much debate over the transparency of the accounts actually produced by companies, especially given the increased freedom that IFRS gives finance managers and the risk that accounts could therefore be manipulated.
“In the past in China such manipulation has been sometimes neglected, especially if a high profile local company is in financial difficulty which means local officials would be in trouble as well. In such circumstances the local government might in the past have provided financial assistance to the company to make its financial figures look healthier than they are. However the state is now cracking down on this kind of behaviour and has issued regulations to prevent local government from effectively subsidising these companies.”
The team from MAFG will analyse the earnings quality of company accounts and see if there are any unique characteristics. Adds Colin: “In the West, earnings quality tends to be affected by market incentives such as executives maybe trying to maintain a strong share performance so that top managers can benefit from share-based rewards. In China earnings quality tends to be affected by more political factors.”
The academics aim to publish their paper in well-respected journals by next year, and hope that will then attract citations from other leading academics in the field, especially from across China.