Constraints on Real Earnings Management and the Mediating Role of Cash Holdings: Evidence from the US and China
Constraints on Real Earnings Management and the Mediating Role of Cash Holdings: Evidence from the US and China

Summary/Abstract: This article presents research covering US and Chinese firms, and examines real earnings manage-ment from 2006 to 2020. Regarding the US, the analysis focuses on auditor-client distance, corporategovernance, IFRS adoption, and tax strategies. Auditor-client distance positively influences realearnings management, suggesting tendencies for managerial manipulation, while strong governance,IFRS compliance, and reduced tax strategies are linked to decreased real earnings management. Cashholdings serve as mediators, highlighting the roles of governance and audit quality. Concurrently, withregard to China’s emerging economy, the study analyses real earnings management factors amongfirms on the Shanghai Stock Market. Similar to the US findings, employee tenure is not significant,while cash holdings mediate, indicating positive performance and aligning with the signalling theory.These studies enhance the understanding of real earnings management, emphasising the influenceof governance, frameworks and signalling mechanisms on transparent financial reporting acrossboth advanced and emerging economies from distinct perspectives.

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