Accounting researchers question the effect of (“bright-line”) regulations on firms' financial reporting behavior. To offer evidence on this issue, we take advantage of the regulatory environment in the Chinese setting. In China, regulators have created a bright line at which firms must...

This study examines whether firms with private loan contracts that contain debt covenants based on earnings before interest, taxes, depreciation and amortization (EBITDA) are more likely to misclassify core expenses as special items (i.e., classification shift). Misclassifying core expenses as...