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Revisions about Government Subsidy Disclosures and Investors’ Response to Earnings Reports: Evidence from the 2017 Government Subsidy Disclosures

Applied Finance and Accounting

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Title Revisions about Government Subsidy Disclosures and Investors’ Response to Earnings Reports: Evidence from the 2017 Government Subsidy Disclosures
 
Creator Hu, Xiaoyu
Tang, Jinying
Wang, Qun
 
Description We examine whether the quality of information in earnings reports, as indicated by the earnings response coefficient (ERC) decreases when the measurement and disclosure of government subsidy has been changed by revising accounting standards. According to the old accounting standards in China, the gains from government subsidy should be reflected in “non-operating” income. However, the newly revised accounting standards regulates that a part of government subsidy can be reflected in the report item of “other income” in under the operating income item. We use 2017 revisions of accounting standards in China as an instrument to capture a change in the position of financial statements where the government subsidy is revealed. Employing a difference-in-differences design and exploiting the adoption of the new accounting standards, we find a statistically and economically significant decrease in ERC for treated firms relative to controlled firms. Our findings represent the first empirical evidence that the change of government disclosures can negatively affect the information content of earnings report.
 
Publisher Redfame publishing
 
Contributor —
 
Date 2019-07-26
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://redfame.com/journal/index.php/afa/article/view/4411
10.11114/afa.v5i2.4411
 
Source Applied Finance and Accounting; Vol 5, No 2 (2019); 26-34
2374-2429
2374-2410
 
Language eng
 
Relation http://redfame.com/journal/index.php/afa/article/view/4411/4596
 
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