Delisting system reform effects on avoidance behavior and audit reporting: insights from China’s market

Purpose This study aims to investigate the effects of the latest delisting system reform, implemented in 2020 in China, on avoidance behaviors and audit disclosures among firms facing delisting risk. Design/methodology/approach The study uses the difference-in-differences model to empirically test panel data of China’s A-share-listed companies from 2018 to 2022, comparing observations before and after the reform. As a governance mechanism, changes in audit opinions are also analyzed. Findings The findings indicate that during the post-reform period analyzed, accrual-based earnings management increased while real earnings management remained stable. In addition, the likelihood of companies facing delisting risk receiving nonstandard audit opinions increased significantly, although there was no notable change in key audit matter disclosures. The results suggest that among the changes in the reform, although the cross-application of audit opinions and profit indicators is improving risk disclosure, further regulatory refinements are necessary to curtail delisting avoidance behavior. Originality/value The study provides systematic evidence on the reform’s aggregate impact, investigating its policy effects and focusing on common problems that require urgent solutions. The findings offer generalizable conclusions with significant implications for regulators assessing the policy’s overall effectiveness and for investors evaluating market-wide financial reporting quality to help enhance the capital market system.