Variable | Definition |
Dependent Variables |
|
Accruals-based earnings management | The residuals from the following regression:
|
Abnormal Level of Operating Cash Flows | The absolute value of residuals from the following regression:
|
Abnormal Level of Production Costs | The absolute value of residuals from the following regression:
|
Abnormal Level of Discretionary Expenses | The absolute value of residuals from the following regression:
|
Sum of Real Earnings Management | The sum of abnormal level of operating cash flows, abnormal level of production costs, abnormal level of discretionary expenses |
Variables of interest |
|
Internal control quality | The natural logarithm of the Internal Control of Listed Companies Index |
Firm-level life cycle | Two indicator variables: LCGROWTH is equal to1 if the firm is a growth firm, and 0 otherwise; LCMATURE is equal to 1 if the firm is a mature firm, and 0 otherwise |
Control variables |
|
GROWTH | The growth rate of sales |
ROE | Net profit/Average equity |
LEV | Total debt/total asset |
SIZE | The natural logarithm of the total asset |
STATE | An indicator variable that is equal to 1 if the firm is controlled by state, and 0 otherwise |