2．Purpose of Research
It is the purpose of this paper to examine real activity—based EM in Chinese listed companies．
A few recent papers study earnings management in Chinese stock market．
Some find that listed companies
manage earnings through related—party sales，and parent SOEs of listed companies tunnel resources into or away
from the listed companies to extract benefits from the listed companies． Weak corporate governance companies
with a large controlling shareholder tend to manage earnings to exceed regulatory thresholds and at times tunnel
resource away from the listed companies．Some find that local government uses its tax and fiscal policies to help
listed companies from its jurisdiction management earnings to circumvent central government regulatory
requirements．
