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Based on empirical results, the authors found a significant negative correlation between market power and discretionary accruals and market concentration (or lower market competition) and discretionary accruals in both the Chinese or Taiwanese markets. This article is published under the Creative Commons Attribution (CC BY 4.0) licence.Although the Chinese travel companies enjoyed higher market power and market concentration, they engaged in less earnings manipulation than their Taiwanese counterparts as a result of the Chinese Government regulation. https://doi.org/10.1108/JFEP-08-2018-0108 Download as . Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial & non-commercial purposes), subject to full attribution to the original publication and authors.
Based on listed travel companies, generalization of the research results to entire tourism industry is limited. The full terms of this licence may be seen at Financial reports are used to convey corporate information on firm performance.
This study compares the travel companies’ practices of smoothing out earnings between China and Taiwan, thus helping managers and investors in making their financing, investment decisions. (2019), "Market power, competition and earnings management: accrual-based activities", Journal of Financial Economic Policy, Vol. However, corporate managers could choose reporting methods to reflect the financial figures to their own advantages.
This technique is conducted for income smoothing, which means that by eliminating large movements in profits, companies can report a smooth trend over a number of years (Hussey, 1995).
The study of earnings management began in the 1980s, with Dye (1988) stating that managers engaged in earnings management because their compensation schemes depended on a firm’s profits.
Earnings management can be achieved through two accounting methods: real activities and accrual-based activities (Schipper, 1989).
Accrual-based earnings management can be further divided into two categories: discretionary and non-discretionary.
China and Taiwan, although separated for more than 100 years politically, share the same language and cultural roots.
However, China and Taiwan differ not only in their political and social systems but also in their economic systems.
China is ruled by one single ruling party, the Communist Party, since 1949.
It developed itself into a socialist market economy in which public ownership and state-owned enterprises (SOE) dominate within a market economy (Qian, 2000).