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China exhibits a prevalent high degree of ownership concentration, leading to frequent principal-principal conflicts, also known as the type II agency problem. This study investigates the type II agency costs when significant shareholders infringe on the rights of minority shareholders through earnings management. Although several earnings management practices exist, managers have favored real earnings management due to its inherent opacity and considerable manipulability. Thus, this study took a comprehensive model as a proxy for real earnings management. The sample comprises 22,053 firm-year from China’s Shanghai and Shenzhen A-share listed companies between 2011 and 2020. The results indicate a positive effect of ownership concentration on real earnings management among Chinese firms due to higher type II agency costs. The results also show that corporate social responsibility can mitigate the positive effect of ownership concentration on real earnings management. This study offers valuable insights into the ownership concentration that firms with better CSR are less likely to engage in earnings management. Thus, policymakers and shareholders should monitor the ownership structure and, at the same time, encourage the corporate social responsibility of the firms.
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