Low-Carbon Policy and Earnings Management: Evidence from Chinese Listed Companies

To address escalating climate challenges, China has implemented a multi-tiered low-carbon policy framework aimed at achieving carbon peaking and carbon neutrality, profoundly reshaping firms’ strategic and financial behaviors. Using a panel of Chinese listed firms from 2007 to 2022, this study examines how low-carbon policies affect corporate earnings management choices and the underlying mechanisms. The results show that low-carbon policies significantly restrain accrual-based earnings management while simultaneously promoting real earnings management, indicating a clear substitution effect; these findings remain robust across multiple robustness checks. Mechanism analyses reveal that rising financing costs and enhanced digital transformation induced by low-carbon policies curb accrual-based earnings management, whereas increased financial risk and weakened debt-paying ability stimulate real earnings management. Further heterogeneity analyses suggest that the inhibitory effect on accrual-based earnings management is stronger among firms subject to greater analyst coverage and media scrutiny, while the shift toward real earnings management is more pronounced among firms with weaker profitability and those located in regions with lower innovation capacity. Overall, this study deepens the understanding of the microeconomic consequences of low-carbon policies and provides policy-relevant insights for refining green regulatory frameworks and promoting sustainable corporate development.