Fixing the Core, Earnings Management, and Sustainable Emergence From Financial Distress: Evidence From China’s Special Treatment System
研究中国上市公司摆脱特别处理（退市风险警示）时，修复核心业务（提高运营效率）与盈余管理对可持续摆脱（5年内不再陷入）的影响，发现前者有正面作用而后者负面，且该效应在国有企业中更显著。
Throughout their business life cycle, firms may experience financial distress. Successful emergence from such distress is important to their multiple stakeholders. Using a sample of publicly listed firms in China that emerged from Special Treatment (an indicator of delisting risk), we focus on the key actions such firms take prior to emergence, namely, fixing the core of the business and earnings management. We examine how these actions are associated with sustainable emergence, which we define as emergence from Special Treatment without reentry in the next 5 years. Consistent with the expectation that shortcut fixes to problems do not yield a long-term solution, we find that repairing the core of the business by improving operating efficiency is positively associated with sustainable emergence, whereas earnings management is negatively associated with it. We also find that the positive (negative) association between fixing the core (earnings management) and sustainable emergence is pronounced only for state-owned enterprises. Our article adds to the limited literature that examines issues related to distressed firms’ sustainable turnaround.