A Research On The Impacts Of Political Connection On Corporate’s Earnings Management

"Political Connection" as an informal system exists all over the world, and China is no exception. Past researches show that political connection has a profound influence on enterprises’ management behavior, but they haven’t come to a conclusion yet. In the special market background of China’s transition economy, the autonomy of local government is strengthened, which highlights the influence of political connection on corporate’s earnings management. This provides a unique opportunities for us to observe the impacts of political connection. Based on the theory of "helping hand" and "grabbing hand", the research selects the China’s private enterprise from 2007 to 2012 as sample, structures a research route as "System-Accounting Bhavior-Consequences", to observe the motivation of enteprises’accounting behavior.The research finds out that:(1) The economic goal of enterprises with different type political connection is different. The enterprises with "Members of PC or CPPCC" are committed to maintaining good business performance, but the enterpriess with "Government Officials" are inclined to hide profits. (2) The accounting behavior of enterprises with different type political connection is different. The accrual earnings quality of enerprises with "Members of PC or CPPCC" are higher, but the enterpriess with "Government Officials" are quite opposite. (3) In the background of political connections, the earnings’ management behavior of enterprise exhibits certain strategic. By contrast with the quality of accrual earnings, the real earnings quality of enerprises with "Members of PC or CPPCC" are lower, but the enterpriess with "Government Officials" are quite opposite.The contribution of this study:Baed on a detailed classification of political connections and a complete research route, the research provid more convincing empirical evidence about the impacts of political connection on corporate’s earnings management. Furthermore, by introduced the perspective of real activities manipulation to research, the research finds out that the earnings management behavior of enterprises exhibits certain strategic. By analyzing the accounting behavior and earnings quality of enterprises with political connection, this research can make the government, enterprise, and other stakeholders have a more in-depth understanding on the political connection and its influence.