Investor Attention and Earnings Management：Empirical Evidence from the Listed Firms in China

Abstract

The role of investors in the capital market has not been adequately studied. And what is the effect of investor oncorporate governance has not reach the same conclusion. This paper empirically tests the relationship betweenearnings management and investors’ attention. And it also investigates how the firms’ type of ownership affectsthe relationship between earnings management and investors’ attention. Using the data of Baidu searchingvolume index of the non-financial Chinese listed firms from 2007 to 2011, we construct a measure of investorattention in this paper and find that firms with higher investors’ attention are exposed to higher level of earningsmanagement. Compared with state-owned enterprises, investors’ attention has a larger effect on the non stateownedenterprises. This paper enriches our understanding of the corporate earnings management behaviour andthe role of investor attention in corporate governance.Keywords: Earnings management; Investor attention; Ownership