Corporate propping through related party sales: The effects of regulations on the market for ownership control in China

Williams, M and Taylor, D 2011, 'Corporate propping through related party sales: The effects of regulations on the market for ownership control in China', in Proceedings of the 11th Asian Academic Accounting Association Annual Conference, Bali, Indonesia, 8 - 12 October, pp. 1-18.


Document type: Conference Paper
Collection: Conference Papers

Title Corporate propping through related party sales: The effects of regulations on the market for ownership control in China
Author(s) Williams, M
Taylor, D
Year 2011
Conference name The 11th Asian Academic Accounting Association Annual Conference
Conference location Bali, Indonesia
Conference dates 8 - 12 October
Proceedings title Proceedings of the 11th Asian Academic Accounting Association Annual Conference
Publisher Asian Academic Accounting Association
Place of publication Sintok, Malaysia
Start page 1
End page 18
Total pages 18
Abstract This study investigates the phenomenon in China of listed companies propping up their repmted earnings through the use of abnormal related-party sales. Prior studies identify the practice of propping to be prevalent in jurisdictions where the State is usually the controlling shareholder and legal enforcements of minority shareholders' interests is weak. In this study, it is hypothesised that two factors associated with government regulation of listed companies in China will distort the market for ownership control and consequently impacting on the practice of propping. The first factor is the firm's risk of being classified as a 'special treatment' firm by regulatory authorities in China when its ROE gets close to a regulatory threshold. The results reveal that this first factor is associated with greater propping. The second factor is the proportion of non-tradable shares retained by a State-based controlling shareholder from a government allocation. The results reveal that this second factor provides a batTier to competition tor control of the listed company and is associated with lower propping. The effects of other company-specific variables on propping are tested, and the implications for minority shareholders of listed companies in China are discussed.
Subjects Financial Accounting
Keyword(s) Corporate Propping
Related Party Sales
State Ownership
Non-Tradeable Shares
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