Do Corporate Site Visits Constrain Real Earnings Management?

Abstract

This study investigates the relationship between corporate site visits (CSVs) and firms’ real earnings management. Using a unique dataset of site visits to Chinese firms listed on the Shenzhen Stock Exchange from 2009 to 2016, we find that such visits are negatively associated with firms’ real earnings management. The results are robust to using alternative CSV measures, controlling for alternative communication channels, and using the propensity score matching method. In cross-sectional analyses, we find that the negative association between site visits and real earnings management is stronger for more complex firms and firms with greater information asymmetry. In addition, we find that CSVs are negatively associated with both management and corporate misconduct but not with accrual-based earnings management or restatements.

Corporate site visits and financial report quality

“…Moreover, several possibilities can explain the opposite results between our study and Broadstock et al. (2022). Specifically, in addition to the different sample periods, the two studies differ in the measures of corporate site visits (i.e., the natural logarithm of the total number of corporate site visits in our study versus the natural logarithm of one plus the number of corporate site visits in Broadstock et al.…”

“…We also show some evidence on the significant influence of institutional ownership and state ownership on the association between corporate site visits and earnings disclosure quality. Moreover, several possibilities can explain the opposite results between our study and Broadstock et al (2022). Specifically, in addition to the different sample periods, the two studies differ in the measures of corporate site visits (i.e., the natural logarithm of the total number of corporate site visits in our study versus the natural logarithm of one plus the number of corporate site visits in Broadstock et al [2022]), the measures of accrual-based earnings management (i.e., modified Jones model as suggested by Dechow, Sloan, and Sweeney [1995] versus Kothari et al's [2005] modified Jones model) and other control variables in the primary regression models.…”

“…Qi et al (2021) examine a sample of firms listed on SZSE for the 2013-2015 period and find a negative association between corporate site visits and accrual-based earnings management. With a sample of Chinese firms listed on SZSE during the 2009-2016 period, Broadstock et al (2022) show that site visits are negatively related to real earnings management. They also find negative relation between site visits and both management and corporate misconduct.…”

“…Prior research on financial reporting quality mainly focuses on analyzing firm characteristics (e.g., DeFond & Jiambalvo, 1994) and corporate governance characteristics (e.g., Balsam et al, 2003;Chiu et al, 2013) as determinants of financial reporting quality. Limited prior studies have investigated whether selective access events influence financial reporting quality (Broadstock et al, 2022;Qi et al, 2021). Qi et al (2021) examine a sample of firms listed on SZSE for the 2013-2015 period and find a negative association between corporate site visits and accrual-based earnings management.…”

“…With a sample of Chinese firms listed on SZSE during the 2009–2016 period, Broadstock et al. (2022) show that site visits are negatively related to real earnings management. They also find negative relation between site visits and both management and corporate misconduct.…”