The substantial convergence of Chinese accounting standards with IFRS and the managerial pay-for-accounting performance sensitivity of publicly listed Chinese firms

We examine how China's adoption of a new set of Chinese Accounting Standards (CAS) that is substantially converged with the IFRS affects the managerial pay-for-accounting performance sensitivity of publicly listed Chinese firms. We find that central-government-controlled firms adopted an economically significant managerial pay-for-accounting performance sensitivity prior to the new CAS adoption. However, the pay-for-accounting performance sensitivity declined significantly after the new CAS adoption, especially for central-government-controlled firms that were more significantly affected by the new CAS adoption. We do not find similar evidence for local-government-controlled firms whose managers were not subject to economically significant pay-for-accounting performance sensitivity prior to the new CAS adoption. There is no evidence that the difference in results between the two types of firms is due to confounding events. Overall, our results suggest that China's new CAS adoption reduces the stewardship usefulness of financial reporting.