Earnings Management And The Economic Consequence Of Heavy Pollution Industry In China

Since the event of "PM2.5 Burst Table" which happened in Beijing fo r the first time at the end of October in 2011,the air quality of China is getting worse and worse,the fog haze days are more and more.In 2013,the national average days of haz e are up to 36 days,which is the most in the past 52 years,even some places’ haze day is over 100 days.Haze was listed in "ten big things of China’s ecological civilization construction in 2013",and then listed in "top ten things which the media most focus on" for three consecutive years.Haze has become "star" in the pollution of the environment,its harm to human health and ecological environment caused the social attention of the public and the government."Haze" is from an ecological term into an ecological disaster,the deteriorating environmental quality lead to "popular discontent",the public denounce severely the unfriendly environmental protection of polluting enterprises and the government’s inaction,fast and convenient network media provides an effective channel for event exposure and public opinion transmission.Such negative publicity and public opinion pressure directly forced government departments to implement stringent controls,leading to the political costs of heavily polluting enterprises rose sharply after the event of "PM2.5 Burst Table".Faced with the rising political costs which caused by a “natural experimental” exogenous event of "PM2.5 Burst Table",as one of the "culprit",heavily polluting enterprises whether will downward earnings management in order to avoid political costs or obtain more government grants? The heavily polluting enterprises of different nature whether have different political sensitivity? If downward earnings management,whether influence government decision-making,obtain more government grants?In order to explore these questions,based on the event of "PM2.5 Burst Table" which happened in Beijing for the first time at the end of October in 2011,the paper selects heavily polluting enterprises as the experimental group,non-polluting enterprises as control group,uses modified Jones model and DID model to examine that when political costs rise,the heavily polluting enterprises whether will downward earnings management;Then,analyze the heavily polluting enterprises of different nature whether have different political sensitivity;Finally,from the perspective of government,analyze the economic consequences of earnings management,examine whether the government is veiled and influence his economic decisions.The results found that:(1)After the event of "PM2.5 Burst Table",compared with the non-polluting enterprises,heavily polluting enterprises carried out a significant downward earnings management,which means that the political costs hypothesis is a pplicable in China;(2)After the event of "PM2.5 Burst Table",compared with the non-state heavily polluting enterprises,state-owned heavily polluting enterprises have more motivation to downward earnings management,which means that the state-owned heavily polluting enterprise’s political sensitivity is stronger;(3)Government grants have no significant relationship with corporate earnings management behavior,heavily polluting enterprises didn’t get more government grants,the grants policy-making of government is rational.The innovation points of this paper are:(1)Select the “natural experimental” exogenous event of "PM2.5 Burst Table" as background,put the pollution of environment,the political costs and earnings management together to verify the applicability of the political cost hypothesis in China,both broadening the research field of the earnings management and enriching the connotation of political cost;(2)Use the double difference model of econometrics(DID model)to avoid the confusion trigger effect of other exogenous events which happened in the same time series,and choose an exogenous situation which has universal effect,so,the result of this paper is more general,reliable and real.