How does carbon emissions trading policy affect accrued earnings management in corporations? Evidence from China

•Emission-regulated firms significantly engage in accrued earnings management after implementing ETS in China.•The impact is strengthened for firms with a lower cost pass-through ability and firms with a higher carbon emissions intensity.•Firms are motivated to manage earnings by the compliance costs and carbon risks associated with the new environmental regulation.•The research sheds light on the potential downside consequence of the ETS.