Using data from China, we examine whether and how the incentive to boost GDP growth at the government level affects earnings management at the firm level. We find that firms in provinces with GDP growth lower than the national level or the average of the adjacent provinces are more likely to engage in earnings management than firms in other provinces. Specifically, they are more likely to inflate revenues, overproduce, and delay asset impairment losses. The aggregate earnings management induced by GDP growth incentives accounts for about 0.5% of GDP. The results are stronger for local state-owned enterprises, in provinces with a lower level of marketization, for firms in provinces with younger governors, and in the years immediately prior to the turnover of provincial officials. Overall, this paper provides systematic evidence on how firms engage in earnings management to boost the GDP growth in their provinces.

Using all the data of options on the China 50 ETF, we study the pricing kernel monotonicity by adapting the recently proposed conditional density integration approach of Linn-Shive-Shumway (LSS). Methodologically, we improve LSS on several useful aspects and make its procedures applicable universally. Empirically, we provide new supporting evidence for the monotonicity of pricing kernel from a Chinese portfolio. Equally important, we are the first to obtain monotonic pricing kernels over the whole range of returns. Finally, we initialize the study of the term structure of pricing kernel and report the results with one-, two-, four- and eight-week terms. Pricing kernels show little variation for less than one-month terms, but exhibit a higher curvature for eight weeks, implying higher aggregate risk for longer-term positive returns.