Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/338498 
Year of Publication: 
2023
Citation: 
[Journal:] China Journal of Accounting Studies (CJAS) [ISSN:] 2169-7221 [Volume:] 11 [Issue:] 2 [Year:] 2023 [Pages:] 270-299
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
We examine whether firms engage in classification shifting to meet performance targets during mergers and restructuring. Using a sample of listed firms that complete major asset restructuring and sign performance commitment agreements from 2008 to 2019, we find that during the commitment period, nearly 39% of firms 'step on the line' to achieve net income before non-recurring items, i.e., the realised performance slightly exceeds the promised performance target. Compared to control firms and non-commitment years, firms that 'step on the line' to meet the target are more likely to achieve this by misclassifying recurring expenses as non-operating losses. Furthermore, this effect is more pronounced in firms with larger committed amounts, firms using stock to compensate for non-performance, and firms audited by non-Big 4 auditors. Overall, our paper extends the research on incentives for classification shifting and has implications for regulators to strengthen the regulation of accounting treatment in performance commitments.
Subjects: 
classification shifting
mergers and acquisitions
non-recurring items
performance commitment
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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