PurposeThis study aims to examine the earnings management behaviour of financially distressed listed companies in China for the period 2002‐2006.Design/methodology/approachThe present study uses discretionary accruals to serve as a proxy variable for earnings management, with the type of ultimate ownership and the type of industry to which the company belongs functioning as independent variables.FindingsThe empirical results show that the desire to avoid continued special treatment (ST) status and the risk of being de‐listed leads firms to adopt different earnings management behaviour before and after being designated as an ST firm.Research limitations/implicationsThe desire to avoid being de‐listed is as strong among managers of state‐owned companies as it is among private companies.Practical implicationsImplementing the effective regulation of corporate earnings management is therefore an issue of great importance. It is recommended that the government needs to take the degree of industry regulation into account when assessing regulations aimed at controlling earnings management.Originality/valueIn a transition economy like China, the state versus private ownership and the degree of government regulation in industry is likely to affect the earnings management of financially distressed companies. The study demonstrates that companies in less‐regulated industries tend to undertake more earnings management in the years both before and after they are designated as ST companies.

This study uses a comprehensive sample of 763 Chinese listed companies to explore the relationship between the extent of related party transactions and operational performance. The empirical results show that when the listed company is controlled by a related party, the higher the level of related party transactions, the worse the operational performance of the listed company; this is particularly true in the case of related party transactions that involve sales, loans, guarantees and mortgages, or leases. There is thus a clear need to improve the regulation of related party transactions and the related disclosure requirements.related party transactions, corporate governance, ownership structure,

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PurposeThis paper sets out to explore the effects that the setting‐up of an independent director system has on the operating efficiency of information electronics companies in China.Design/methodology/approachThis paper uses 87 Chinese listed electronics companies during the initial stages of the independent directors system from 1999 to 2002 as sample subjects, and employs a two‐stage procedure for empirical investigation.FindingsThe non‐parametric test results verify that there is no significant difference in the operating efficiency of Chinese electronics companies following the establishment of an independent director system. The Tobit regression results show that the establishment of an independent director system in the Chinese electronics industry does not influence overall technical efficiency (TE), pure technical efficiency (PE), or scale efficiency (SE).Research limitations/implicationsWhether the related schemes of the current corporate governance structure practised in China can achieve their expected results, as well as the possible future development direction of the governance structure, is of the utmost importance, and is a research subject worth examining in greater depth.Practical implicationsIt is of the utmost urgency for such corporate governance to improve the selection mechanism for independent directors, to establish incentives and responsibility‐taking mechanisms for independent directors, and to amend the company law and securities law to perfect the rules of an independent director system.Originality/valueBy using DEA and the Tobit regression model, this study attempts to investigate whether China, in addition to fraud prevention, has improved corporate operating efficiency by introducing a system of independent directors.

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