Research On The Influence Of Official Tenure Assessment On Enterprise Earnings Management

Since the reform and opening up,along with the rapid development of China's economy,a lot of academic exploration on the cause of the economic growth in China has been conducted.A popular kind of view at present is that the fierce competition between local governments stimulated the development of China's economy.Meanwhile,with the system of regarding economic growth as the main assessment content,the political promotion tournament between local government officials to obtain political promotion becomes an important power to promote the rapid economic development of our country.With the continuous improvement of the tenure system of party and government leaders,tenure assessment has become an important reference to political promotion for local government officials.In order to get promoted,officials have to constantly promote the local economic development to make good achievements in his tenure.A large number of studies have shown that the replacement of local government officials will affect local economic development,and it will also have effects on the enterprises' investment and financing behaviors.As an important factor which can affect officials' decision,tenure assessment can lead to changes of regional macroeconomic policies and also have influence on the enterprises' microscopic behaviors.In the period of transition economy in China,local governments play significant roles in economic growth.In order to make good achievements,officials may intervene enterprises' behaviors.At the same time,to maintain good relationship between government and enterprises,which aiming to gain access to more resources from government and safeguard the executives' individual interests,enterprises may also be positive to cater to government's actions.As an important method of financial operation,earnings management may be one way for government to intervene,as well as one method for enterprises to avoid policy changes,which can cause performance volatility.So,what are the differences of earnings management behaviors between enterprises in the first year and last year in official tenure assessment?Existing literature hasn't involved this aspect.This paper investigates the impact of official tenure assessment on enterprise earnings management,by using the tenure information of chief leaders' in the local Party and governments(the provincial Party secretary and governor)in China's 31 provinces(municipalities directly under the central government or autonomous regions)and the data of non-financial listed companies in A share market.Through the fixed effects model regression test,we found that enterprise earnings management is not significant in the first year of the provincial Party secretary's tenure assessment,but significantly positive in the last year.However,governor's tenure assessment has no significant impact on enterprise earnings management.By further group inspection,we found that in the last year of the provincial Party secretary 's tenure assessment,enterprise earnings management is significantly positive in state-owned enterprises,areas with high percentage of state-owned economy,the nonregulated industries,areas with high GDP growth level,the central and western regions and areas with high degree of government intervention to the market.The result in this paper shows that,in the economic transformation period of China,the provincial Party secretary has larger right in the respect of regional economic and regulatory policy.On one hand,under the system of official tenure assessment,there are differences between officials' policies in different assessment period,consequently,officials intervene more to enterprises in the last year of one tenure assessment.On the other hand,to cater to local government officials and to meet the need of avoiding the risk of policy uncertainty,enterprises may strengthen earnings management.The result in this paper will help us further understand the relationship between government and enterprises in our country,and deepen the understanding of enterprise earnings management.Meanwhile,it may provide new evidence for local governments' intervention in the enterprises and some policy implications to perfect the system of official assessment and enterprise supervision in China.