Political Connections, Tax Collection And Earnings Management

Tax collection & management, as a kind of external governance mechanism, which is used to monitor the operation of the company, has a great influence on the earnings management. For the consideration of the cost of earnings management, companies will carry out more non-taxable items of earnings management, resulting in higher tax-earning difference. Higher tax-earning difference will make tax authorities pay high attention to the potential target for tax inspection. The tax inspection is an administrative behavior with larger freedom discretion, companies with political connection can use its connection with the government to interfere with the work of the tax department:while the company make more non-taxable earnings management, resulting in a larger difference between tax and earning, but the tax authorities still maintain a certain tolerance.This paper analyzes the relationship between tax collection and management and the earning management under the perspective of political connection from the theoretical and empirical level. First of all, this paper theoretically analyzes the theoretical mechanism of tax collection and management of the accrual earnings management from the perspective of political connection and puts forward two hypotheses. Then, on the basis of theoretical analysis, the data of the private listing Corporation in China in 2009-2013 years are tested and analyzed by using the fixed effect balance panel model.The main conclusions of this paper are as follows:(1) the tax collection & management weakens private company’s earnings management; (2) private company’s political connection weakens the inhibit corresponding between tax collection & management and accruals earnings management. Finally, this paper puts forward the policy recommendations on the political connection, tax collection and management and the project earnings management of private listing Corporation.