Purpose This study aims to examine the impact of various dimensions of product market competition on accounting conservatism particularly in the wake of regulatory changes and varying ownership structures in China. Design/methodology/approach This study examines impact of product market competition on accounting conservatism by using conservatism measure of Khan and Watts (2009) and measures for important dimensions of competition such as competition intensity, non-price competition and competition from existing rivals and potential entrants. Findings The findings suggest that competition intensity and non-price competition result in higher conservatism. This study also advocates that industry leaders exhibit lower conservatism as compared to industry followers. Moreover, the authors document positive association between competition from existing/potential rivals and accounting conservative. These findings reveal that regulatory changes (International Financial Reporting Standards adoption) influence the effect of various dimensions of competition on conservatism. The authors also propose that financial reporting practices of state-owned enterprises are not influenced by competition. However, competition affects financial reporting (conservatism) when institutional or managerial ownership is higher. Originality/value The authors document that strategic considerations shape conservative financial reporting decisions of the managers. This study also advocates that when regulatory changes affect the influence of competitive pressure on the conservative reporting decisions of the mangers. Findings also suggest that unlike state ownership, institutional as well as managerial ownership affects the influence of competition on managerial decisions like conservative financial reporting. These results are robust to various alternative measures of conservatism.

Purpose This study aims to examine the impact of product market competition (PMC) from existing rivals and potential market entrants on earnings quality (EQ) in China. Design/methodology/approach This study examines the impact of PMC on EQ by using the EQ measure of Kothari et al. (2005), and it uses measures for competition from existing and potential rivals. This study analyzed Chinese firms for the period of 2000-2014 and also examined the impact of International Financial Reporting Standards (IFRS) adoption and state ownership on the relationship between PMC and EQ. Findings This study found a positive relationship between PMC and EQ. It also documents that competition from existing rivals does not improve EQ by reducing real activity manipulation, but competition from potential entrants does. The findings propose that market competition from existing rivals is a relevant factor for determining EQ before and after IFRS adoption, but competition from potential entrants improves EQ only after IFRS adoption. Moreover, the results suggest that market competition plays no role in improving the EQ of state-owned enterprises (SOEs). Originality/value The results support the argument that PMC acts as a governance mechanism and influences managerial decisions regarding financial reporting. Our study also helps to understand the impact of change in the regulatory regime, i.e. IFRS adoption, on the relationship between PMC and EQ. This study also helps demonstrate the impact of competition on management decisions with respect to the EQ of SOEs.