Merchant guild culture and real earnings management: evidence from China

ABSTRACT

Merchant guild culture is one of the most important traditional cultures, and it has had a profound impact on the economics of China. This paper explores the influence of merchant guild culture on real earnings management (REM). Using hand-collected data, we find robust evidence that merchant guild culture has a negative effect on REM. This effect operates through improving integrity and easing financing constraints. The negative effect is larger for state-owned firms, firms with appropriate internal controls, and firms with high analyst attention. On the whole, the study complements the existing literature by illustrating how traditional culture affects REM.

KEYWORDS:

• Merchant guild culture
• real earnings management
• integrity
• financing constraints

JEL CLASSIFICATION:

• A13
• G34
• M14

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

Funding

The work was supported by the Wuhan Textile University Research Funding Project [225245].