Government Regulation and Classification Shifting in Chinese SOEs
Xiaomin Ma

Abstract
This study investigates earnings management through classification shifting after implementation of government regulation with Chinese data. Classification shifting is the deliberate misclassification of items within income statement. With Differences-in-Differences (DID) estimation, there are two key findings. First, the proportion of state-owned enterprises' consumption expenditures in cash coming into operating expenses in the period decreased significantly. Second, we find a strong tendency for managers to shift expenses upwardly into inventory items.

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