The Effect of Financial Status on Earnings Quality of Chinese Listed Firms

This paper investigates the relation between accounting-based earnings quality attributes and the financial status of Chinese companies listed in Shanghai and Shenzhen stock exchanges from 2005 to 2007 by classifying them as either ‘healthy' or ‘bankrupt' firms. We find that accruals quality, earnings predictability and earnings smoothness are significantly different between healthy and bankrupt firms, but not earnings persistence. Additional analysis undertaken indicates that firm categories (‘healthy', ‘financially-distressed', and ‘bankrupt') based on financial status does not indicate distinct differences in earnings quality attributes