Corporate Governance and Earnings Quality : Evidence from China

The present paper examines the association between corporate governance and earnings quality using the Corporate Governance in Finance (CGF) Index in China. Using a sample of 4,455 Chinese firms for fiscal years 2012 and 2014, the paper finds that firms with a higher CGF Index and more effective internal control have higher earnings response coefficients, their earnings are more persistent and more predictable in determining future cash flow, and they engage less in accrual and real earnings management activities. The paper suggests that earnings quality for the sample of Chinese firms is linked to corporate governance and internal control measures, which has implications for firms in other emerging markets