An Empirical Study On Political Costs And Earnings Management Of Chinese Enterprises

A lot of studies at home and abroad have shown that enterprises earnings management affected by various motives, including capital market mover(IPO allotment, to avoid losses, mergers and acquisitions and securities to meet the analysts’ forecasts, etc.), contract motive(executives remuneration and debt covenants, etc.) as well as the political costs of motivation(the industry regulator, tax and antitrust regulators, etc.). Throughout the domestic and international research of earnings management motivation based on the cost of political motivation research is still immature, and the existing research is mainly based on the mature markets of Western capitalist countries economic background, for a special institutional background and social transition period study of enterprises earnings management is even more rare for political motives costs. The political cost, is an enterprise because the affected industry regulation, tax barriers, antitrust regulators and other political activities, resulting in the transfer of corporate wealth occurs, causing economic losses to the enterprise pay costs. Because China is in a period of economic and social transition, China’s emerging socialist market economy and Western mature capitalist market economy, there is not a small difference, China’s socialist market economic system is not perfect, the impact of government action on enterprises is weakening but still great. Therefore, the study of political costs for Chinese enterprises earnings management becomes indispensable.At the end of october 2011, "PM2.5 burst table" outbreak, causing the entire society around the "What is PM2.5", " Why not China don’t publish PM2.5 value?", " What harm of PM2.5 on environmental and health" great debate, such as the representative to the PM2.5 words smog phenomenon becomes severe weather including women and children. Up to now, to fall and winter seasons, the smog has frequently filled the headlines, smog covering a wide range of dozens of cities nationwide, smog pollution under heavy lock the city, it seems to have become a permanent basis. In view of this, the relevant legislative body made up mind about the air pollution control legislation, accelerating air pollution control legislation process, issued a series against air pollution control laws and regulations, air pollution control law enforcement and regulatory efforts of government departments have greatly strengthening environmental protection, tax levy is also very likely in a year or two. Under this grim reality background of heavily polluting enterprises in the "PM2.5 burst table" after the incident, facing due to the smog caused by the legislative bodies to accelerate the air pollution control legislation, government departments to strengthen air pollution control law enforcement supervision political dynamics and environmental costs and other aspects of the tax levy will soon rise in vain. Thus, leads to the research question: Chinese heavily polluting enterprises are facing such a huge political cost by the smog brought about, whether by negative earnings management to reduce surpluses to avoid? Furthermore, different levels of profit heavily polluting enterprises in this situation the performance of the same? Different sizes of heavily polluting enterprises in this situation the performance of different? In our special institutional background of state-owned enterprises and non-state-owned heavy polluting enterprises face the political cost performance smog brought the existence of difference?In response to these research questions, this paper though theoretical analysis, literature review and practical analysis, propose the four hypotheses of this article: First, after "PM2.5 burst table" outbreak, to the political smog brought heavy polluting enterprises a sharp rise in costs, and therefore heavily polluting enterprises will be downward earnings management; Second, after "PM2.5 burst table" outbreak, the more profitable heavy polluting enterprises due to higher political costs faced more will be down earnings management, reducing its profit report; Third, after the "PM2.5 burst table" outbreak, the higher the larger the political costs of heavily polluting enterprises are facing more downward earnings management will be reduced profit reports to reduce or avoid high political cost; Fourth, after the "PM2.5 burst table" outbreak, compared to the state-owned heavy polluting enterprises, non-state-owned enterprises due to heavy pollution face higher political costs will be more downward motives earnings management. By selecting MEP six listed companies focused on the control area in 2013 "issued on the implementation of special emission limits of air pollutants announcement" as provided for in the study sample, 2007--2014 as a sample period, the paper correspond to the four research hypotheses were constructed four empirical analysis model, an empirical test. Empirical results showed that: In order to reduce the political costs of smog brought about China’s heavy polluting enterprises have been significant downward earnings management; the more profitable the more heavily polluting enterprises motives downward earnings management, and political cost may high level of earnings management will profit heavily polluting enterprises have been suppressed, but the evidence is not sufficient; heavily polluting enterprises with the increase of their size, the motivation of earnings management, the stronger, and will be downward earnings management, but after "PM2.5 burst table" outbreak, the larger of heavily polluting enterprises have been upward earnings management, the political costs of the "scale hypothesis" is not established; non-state-owned heavy polluting enterprises compared with heavily polluting enterprises in after "PM2.5 burst table" outbreak, although higher political costs faced by non-state-owned enterprises have been heavily polluting upward earnings management.Conclusions of this study shows that in the economic and social transition period earnings management behavior of Chinese enterprises, we must consider the political costs of the economic and social transformation and development process for the formation of corporate earnings management influence. Deeper, this study also indicates that China’s legislative body of air pollution prevention and control effect is established and government air pollution control law enforcement and regulatory aspects significant for the promotion of the past 30 years at the expense of the environment, resources and ecology of the enormous cost of sustained high growth heavily polluting enterprises mode changing concept of development, the adjustment of energy structure, increase investment in research and development and other environmental protection and technological innovation, while promoting our businesses and citizens to enhance the concept of environmental protection, and earnestly carry out environmental action to improve production and create a better living environment, has an important significance.