The purpose of this paper aims to investigate the impacts of corporate foreign investments on earnings management. This paper asserts that foreign investment complicate the financial reports. The information asymmetry between managers and outside investors will increase the possibility for companies to use discretionary accruals to deliver or conceal information, which may generate opportunistic or informative earnings management. We obtain sample companies from 2003 to 2005 and use the ratio of foreign assets to total firm assets, country scope, and the number of foreign investees to proxy for foreign investments. We also use civil law countries and information transparency appraisal to proxy for “leagal origins, accounting and better disclosure regulation” and “better information transparency” and use the discretionary accruals to proxy for earnings management. Our findings suggest that higher degree of foreign investments will increase opportunistic earnings management. We also find that companies can reduce the impacts of foreign investments on opportunistic earnings management when the higher proportional of their foreign investments is in civil law countries or companies have better information transparency.
