Export control and earnings management: Evidence from China

This research examines whether and how U.S. export controls impact the earnings management of sanctioned Chinese firms. We find that U.S. export controls intensify earnings management among sanctioned firms. Our channel analysis reveals that financial distress, cash flow volatility and internal control deficiency serve as key channels. Our cross-sectional analysis shows pronounced earnings management among firms with weaker external oversight and poorer internal corporate governance. Lastly, firms that resort to increased earnings management due to export controls tend to experience deteriorating profitability and slower sales growth in the long run. These findings shed light on firms' opportunistic accounting behavior in face of trade sanction and highlight the significance of external monitoring in improving accounting information quality.