Investor sentiment and corporate earnings management

Utilizing data from Chinese A-share listed companies from 2005 to 2021, this paper examines how investor sentiment affects corporate earnings management and the moderating role of institutional investors. The results reveal that investor sentiment, whether heightened or subdued, significantly influences corporate earnings management in a positive manner. Institutional investors amplify this effect during high sentiment periods but mitigate it when sentiment is low. Further analysis reveals ownership-based differences in how firms respond to sentiment. The findings offer new insights into the interaction between investor sentiment, institutional holdings, and earnings management behavior.