Work

GDP Manipulation, Cost of Equity, and Firm Performance

Year: 2025

Type: article

Abstract: ABSTRACT We use satellite night light data to estimate the extent of gross domestic product (GDP) manipulation in China and investigate the impact of such manipulation on local firms. Firms located in provinces with higher levels of GDP manipulation experience a higher cost of equity, lower investment efficiency, and weaker profit growth. Using a difference‐in‐difference test, we show that the cost of equity decreases and firm performance improves following unexpected turnovers of top government officials, which significantly reduces GDP manipulation. Additionally, our findings suggest that local firms may collude with government officials in costly data manipulation. We show that firms in provinces with higher levels of GDP manipulation receive more government subsidies, and that firms with lower pay–performance sensitivity (PPS) are more likely to collude.

Source: Journal of Business Finance &amp Accounting

DOI: 10.1111/jbfa.12870

Authors: Guilong Cai, Xiaoxia Li, Danglun Luo, Zhenyang (David) Tang

Institutions: Sun Yat-sen University, Guangdong University of Technology, Clark University

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDGs: Decent work and economic growth, Peace, justice, and strong institutions

Open Access status: bronze

Funders: University of Dayton, National Natural Science Foundation of China, Sun Yat-sen University