A Study On The Impact Of Political Relevance On Earnings Management

At all times and in all countries, political and economic have been accompanied, political has laid a solid foundation to the prosperity of economic, and the development of economy also provides the material guarantee for the political stability. With the continuous progress of the society, the closely relation between politic and economy has been concerned. The enterprises, as the subject of the economic, in their growth does also exist this contact about political aspects? In recent years, scholars found a phenomenon, that political connection between the government and enterprises are common, and this association has a certain impact on enterprises. Some researching results show that, the existence of political connection is beneficial for enterprises to enhance their own value, to get a chance to invest in, to obtain financing easily. But some others have the opposite conclusion, that political connection to the enterprise has the more disadvantages outweigh the advantages.This paper summarizes the existed literatures, and clarify the background political connection from the point of political, economic, financial, legal institution and the characteristics of the private enterprises. It analyzes the reason of political connection based on four theories, such as the enterprise development theory, the system risk theory, the theory of social responsibility and the individual position theory. At the same time, the related theories of earnings management are introduced, and the author make the in-depth analysis of the concept of earnings management, and elaborate the motivation of earnings management from three aspects like capital market, contract, and political cost, and then induct the various methods in studying earnings management by scholars at home and abroad.In order to study the influence of political connection to the extent of earnings management, this paper define these enterprises have a political association, in which the non-independent directors or senior management personnel now or ever served as deputies or CPPCC members, or served in government or army or worked as one of young women’s federation officials. Select private enterprises on A shares of the Shanghai and Shenzhen two city stock market from 2010 to 2013 as samples, and longitudinally divide the political connection according to levels into political association on central level and political association on local level, and transversely divide the political connection according to intensity into three types, namely, NPC deputies and CPPCC members, government and military officials, industry and young women’s federation officials. Regression analysis was carried out by building a political association hierarchy model, political connection type model, then we study the impact of different levels and types political associations on the degree of earnings management. The results of the study show that: Considering the tax, the images of company and government or the person’s position of associated person, the companies that have political connections keep the low earnings management degree, comparing to the ones without political connections; Relative to the companies having local level political connection, due to the central level political association has more social attentions, in order to reduce the effect caused by the bad behaviors on the enterprise, the operations on earnings in companies having central level political connection are less. In other words, namely political association on the central level has little effect on earnings management; From the view of division partition association types, in order to continue to maintain the high and intensity correlation with government, the private listing corporations, which have greater overall political connection strength, maybe exist higher degree of earnings management. In this paper, the empirical analysis can provide a useful supplement to the study of the impact of political association on the enterprise. The result show the different correlation modes bring different effects, this can bring some help to the relevant departments in supervision on earnings management behavior of enterprise. Finally, the author according to the empirical study findings summarizes and analyzes the limitations of this paper, and put forward relevant policy suggestions.