Summary of the key variables (with value measured in RMB for all variables)
| Variable | Definition | Data source |
|---|---|---|
| BHAR [t1, t2] | Market-adjusted BHAR over the event window [t1, t2] is calculated by first compounding the raw returns of firm i and its benchmark (the corresponding value-weighted market index returns) over the event window [t1, t2] and then calculating the BHAR as the difference between the compounded returns of firm i and its benchmark | CSMAR |
| MBE | A dummy variable equal to 1 if a firm's reported EPS equals or exceeds the latest analysts' forecasted EPS (i.e. the earnings surprise is 0 or positive), and 0 otherwise. For all variables that involve analyst forecasts (e.g. MBE, SMBEAT and BIGEAT), the latest analyst EPS forecast should be made at most 150 days before the firm's annual earnings announcement date and at least 1 day before the beginning of the event window of the corresponding BHAR in the regression model | CSMAR |
| MBE_EM | A dummy variable equal to 1 if an MBE firm is identified as having engaged in income-increasing earnings management to achieve MBE, and 0 otherwise. We classify a firm as engaging in income-increasing earnings management through discretionary accruals, production, related-party sales, related-party purchases, expenditures or CFO if it is in the highest quintile of AAcruals, AProduction, ARPS or ARPP, or it is in the lowest quintile of AExpenditures and ACFO during the year | CSMAR, Wind |
| SMBEAT | A dummy variable equal to 1 if a firm's actual EPS equals or exceeds the latest analyst forecast by 1 cent per share or less, and 0 otherwise | CSMAR |
| BIGBEAT | A dummy variable equal to 1 if a firm's actual EPS equals or exceeds the latest analyst forecast by more than 1 cent per share, and 0 otherwise | CSMAR |
| AAcruals | Abnormal accruals are estimated using the modified Jones model (equation (A1) in Appendix 2) | CSMAR |
| AProduction | Abnormal production cost is estimated using equation (A2) in Appendix 2 | CSMAR |
| AExpenditures | Abnormal expenditures are estimated using equation (A3) in Appendix 2 | CSMAR |
| ACFO | Abnormal cash flows from operations are estimated using equation (A4) in Appendix 2 | CSMAR |
| ARPS | Abnormal related-party sales are estimated using equation (A5) in Appendix 2 | Wind |
| ARPP | Abnormal related-party purchases are estimated using equation (A6) in Appendix 2 | Wind |
| Surprise | Earnings surprise scaled by the stock price per share at the beginning of the year. Earnings surprise is measured as the actual EPS released on the annual earnings announcement date minus the latest analyst EPS forecast made at most 150 days before the firm's annual earnings announcement date and at least 1 day before the beginning of the event window of the corresponding BHAR in the regression model | CSMAR |
| Analyst | Analyst coverage of a firm, which is measured as the total number of analysts following the firm during the year | CSMAR |
| GVT | A dummy variable equal to 1 if a firm is ultimately controlled by either the central government or a local government, and 0 otherwise | Audited annual reports |
| ROA | Net profit scaled by year-end total assets | CSMAR |
| ETP | The ratio of earnings to price, which is calculated as actual EPS scaled by the closing share price 3 days before the annual earnings announcement date | CSMAR |
| Size | The natural logarithm of total assets at year end | CSMAR |
| MTB | The ratio of market value of equity to book value of equity at year end | CSMAR |
| Leverage | The ratio of total liabilities to total assets at year end | CSMAR |
| CFO | Cash flows from operating activities divided by year-end total assets | CSMAR |
| Prior stock return | Market adjusted BHAR over the window [−210, −11] before the annual earnings announcement date | CSMAR |
| Posi∆Profit | A dummy variable equal to 1 if a firm has a positive increase in earnings during the year, and 0 otherwise | CSMAR |
| Profitable | A dummy variable equal to 1 if a firm reports a positive net profit in its annual earnings announcement, and 0 otherwise | CSMAR |
| Sales growth | Changes in net sales revenue from year t−1 to year t divided by net sales revenue in year t−1 | CSMAR |
| SEO | A dummy variable equal to 1 if a firm makes a share issue application between year t + 1 and year t + 3, and 0 otherwise | CSMAR |
| Delisting risk | A dummy variable equal to 1 if a firm is issued a delisting risk warning, and 0 otherwise | CSMAR |
| Analyst dummy | A dummy variable equal to 1 if a firm is covered by at least one analyst in a given year, and 0 otherwise | CSMAR |
| IndAnaCov | The proportion of firms with at least one analyst in the same industry in a given year | CSMAR |
| Inverse Mills | Inverse Mills ratio, calculated based on the Heckman (1979) two-stage model | Authors' construction |
| Surprise_rank | An ordinal variable obtained by ranking Surprise into deciles, subtracting 1 and then dividing by 9 | CSMAR |
| Variable | Definition | Data source |
|---|---|---|
| Market-adjusted BHAR over the event window [ | CSMAR | |
| A dummy variable equal to 1 if a firm's reported EPS equals or exceeds the latest analysts' forecasted EPS (i.e. the earnings surprise is 0 or positive), and 0 otherwise. For all variables that involve analyst forecasts (e.g. | CSMAR | |
| A dummy variable equal to 1 if an MBE firm is identified as having engaged in income-increasing earnings management to achieve MBE, and 0 otherwise. We classify a firm as engaging in income-increasing earnings management through discretionary accruals, production, related-party sales, related-party purchases, expenditures or CFO if it is in the highest quintile of | CSMAR, Wind | |
| A dummy variable equal to 1 if a firm's actual EPS equals or exceeds the latest analyst forecast by 1 cent per share or less, and 0 otherwise | CSMAR | |
| A dummy variable equal to 1 if a firm's actual EPS equals or exceeds the latest analyst forecast by more than 1 cent per share, and 0 otherwise | CSMAR | |
| Abnormal accruals are estimated using the modified Jones model ( | CSMAR | |
| Abnormal production cost is estimated using | CSMAR | |
| Abnormal expenditures are estimated using equation (A3) in | CSMAR | |
| Abnormal cash flows from operations are estimated using | CSMAR | |
| Abnormal related-party sales are estimated using | Wind | |
| Abnormal related-party purchases are estimated using | Wind | |
| Earnings surprise scaled by the stock price per share at the beginning of the year. Earnings surprise is measured as the actual EPS released on the annual earnings announcement date minus the latest analyst EPS forecast made at most 150 days before the firm's annual earnings announcement date and at least 1 day before the beginning of the event window of the corresponding | CSMAR | |
| Analyst coverage of a firm, which is measured as the total number of analysts following the firm during the year | CSMAR | |
| A dummy variable equal to 1 if a firm is ultimately controlled by either the central government or a local government, and 0 otherwise | Audited annual reports | |
| Net profit scaled by year-end total assets | CSMAR | |
| The ratio of earnings to price, which is calculated as actual EPS scaled by the closing share price 3 days before the annual earnings announcement date | CSMAR | |
| The natural logarithm of total assets at year end | CSMAR | |
| The ratio of market value of equity to book value of equity at year end | CSMAR | |
| The ratio of total liabilities to total assets at year end | CSMAR | |
| Cash flows from operating activities divided by year-end total assets | CSMAR | |
| Market adjusted BHAR over the window [−210, −11] before the annual earnings announcement date | CSMAR | |
| A dummy variable equal to 1 if a firm has a positive increase in earnings during the year, and 0 otherwise | CSMAR | |
| A dummy variable equal to 1 if a firm reports a positive net profit in its annual earnings announcement, and 0 otherwise | CSMAR | |
| Changes in net sales revenue from year | CSMAR | |
| A dummy variable equal to 1 if a firm makes a share issue application between year | CSMAR | |
| A dummy variable equal to 1 if a firm is issued a delisting risk warning, and 0 otherwise | CSMAR | |
| A dummy variable equal to 1 if a firm is covered by at least one analyst in a given year, and 0 otherwise | CSMAR | |
| The proportion of firms with at least one analyst in the same industry in a given year | CSMAR | |
| Inverse Mills ratio, calculated based on the | Authors' construction | |
| An ordinal variable obtained by ranking Surprise into deciles, subtracting 1 and then dividing by 9 | CSMAR |
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