An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Gil Manzon
Boston College

Ji Guo
Renmin University

Abstract: This study examines publicly traded Chinese firms in an attempt to identify which factors result in their demanding more credible financial reporting. The results indicate that firms with reporting high return on equity are more likely to invest in credibility enhancement, most especially high quality auditing. Similarly, the results indicate that large firms are also more likely to invest in credibly enhancement, most especially by listing on the SEHK. Contrary to expectation, more highly leveraged firms do not appear to invest in credibility enhancement. This may be attributable to lender “insiders” who do not have a significant demand for third-party credibility enhancement. Alternatively, it may be attributable to lax monitoring on the part of state lenders. Supplemental analysis breaking the sample into component parts allows for a finer interpretation of the data but does not alter the main conclusions.

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