http://ac.els-cdn.com/S0929119915000140/1-s2.0-S0929119915000140-main.pdf?_tid=6d8b6b82-af6a-11e4-aefe-00000aacb35e&acdnat=1423383416_7c29f0f5118532277231da624c46ae5a

Journal of Corporate Finance Volume 31, April 2015, Pages 67–90

Trading and earnings management: Evidence from China’s non-tradable share reform

Gang Xiao^, 

Highlights

• China’s non-tradable share reform converted non-tradable shares to tradable.
• Earnings management increases after the government enforced the reform.
• Market participants respond less favorably to earnings surprises after the reform.
• Trading by blockholders and insiders explains the rise in earnings management.

Abstract

This paper examines the effect of trading on earnings management under the setting of China’s non-tradable share reform. The government-enforced reform converted non-tradable shares to tradable and thus enabled blockholders and insiders to reduce holdings via public trading. We find significant increases in accruals among Chinese listed companies after the reform. The impact of the reform on earnings manipulations is increasing with the potential for share trading, the degree of information asymmetry and the intensity of stock selling by insiders and blockholders. Our findings support that trading by large shareholders and insiders significantly increases earnings manipulations.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2512329

Thinking Fast versus Thinking Slow: The Effect on Auditor Skepticism

Christopher J. Wolfe Texas A&M University – Department of Accounting

Brant E. Christensen Texas A&M University – Department of Accounting

Scott D. Vandervelde University of South Carolina – Darla Moore School of Business
October 20, 2014

Abstract: 
Based on psychology theory, we propose that intuition can be a key element stimulating auditor skepticism, whereas overreliance on analytical processing can overwhelm auditors’ intuition thereby reducing skepticism. We test our expectations with an experiment containing responses from 85 senior auditors. Our results support our theory. We find that auditors are more likely to judge an asset as potentially impaired if they use their intuition as opposed to analytical processing. When we categorize auditors on their innate use of intuition, our results become more pronounced. We find that auditors using analytical processing, who rarely use their intuition, seldom judge the asset as potentially impaired. Our research suggests that intuition can be of use to auditors, and when ignored, auditors can become less skeptical. These findings should help inform regulators, standard setters, and audit firms as they seek to enhance professional skepticism.