This paper investigates whether market competition enhances firms’ incentives to hide profits. We develop a theoretical model of firms’ profit hiding behavior in competitive environments and derive several testable hypotheses. We then test the model using a database that covers more than 20,000 large-and-medium-sized industrial firms in China during the period 1995-2002. Our findings show that firms in more competitive market environments — as well as firms in relatively disadvantageous positions — hide a larger share of their profits. This suggests that policies intended to promote competition should be accompanied by policies aiming at strengthening institutional infrastructure and at leveling playing fields.
Mendeley saves you time finding and organizing research
There are no full text links
Choose a citation style from the tabs below