How does the COVID-19 affect earnings management: Empirical evidence from China

Using China’s A-share listed companies from 2018 to 2020, this paper examines the impact of COVID-19 on earnings management. The results reveal that: (1) The COVID-19 shock intensifies earnings management, which is reflected in the increasing accrual-based earnings management and real earnings management. Moreover, when enterprises face a higher degree of financial constraints, this shock effect is more evident. (2) Enterprises in industries and regions where COVID-19 is more severe are more affected by the suspension of work and production caused by the epidemic prevention policies, so these enterprises choose accrual-based earnings management through accounting items rather than carrying out earnings management through real activities. (3) Further analysis finds that, enterprises with more investment opportunities have more evident earnings management caused by the COVID-19 shock. However, high-quality auditing has an inhibitory effect on accrual-based earnings management caused by the COVID-19 shock but has no inhibitory effect on real earnings management.