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A Study On The Correlation Between The Independent Directors' Political Connection Strength And The Real Earnings Management Level Of The Company

Posted on:2021-04-03Degree:MasterType:Thesis
Country:ChinaCandidate:M N HuFull Text:PDF
GTID:2416330611969304Subject:Accounting
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The main purpose of the independent director system is to ease the agency problem,supervise the management,and better protect the interests of small and medium shareholders.During the performance of independent directors,the effective functioning of independent directors can inhibit the company's earnings management activities,and its background characteristics will affect the performance of its functions.As a special background feature,the background of political connection has gradually attracted the attention of scholars.Some studies have found that independent directors of political associations have played a role of "booster" on the way of the company's earnings management activities.To this end,on October 19,2013,the Organization Department of the Central Committee of the Communist Party of China issued the Opinions on Further Regulating Party and Government Leading Cadres' Part-Time Employment in Enterprises(hereinafter referred to as " Document No.18").The document sets strict limits on "Party and government leading cadres" to part-time(enterprise)enterprises in terms of whether they can hold part-time jobs,part-time duration,number of part-time jobs,part-time compensation,and age limit for part-time jobs.This policy shock due to changes in the institutional environment provides a rare opportunity to empirically test the economic consequences of companies losing some of their political connections based on the Chinese institutional background.Therefore,this paper uses the opportunity of the " Document No.18" to study the relationship between the independent directors' political connection strength and the company's earnings management level in order to verify the effectiveness of the "Document No.18".In order to ensure the symmetry of the data,after excluding the " Document No.18" publication year-2013,this article uses 2010-2012 and 2014-2016 China's Shanghai and Shenzhen A-share listed companies as samples to build a model to study the correlation between the independent directors' political connection strength and the company's true earnings management level.Based on the comparison of the two sets of data research results,the validity of "Document No.18" was verified,and the group analysis was conducted using the nature of the company's ownership and the degree of marketization of the company's place of registration as moderating variables.The study found that:(1)The strength of independent directors 'political connection has a positive correlation with the company's earnings management level;(2)After the release of the " Document No.18",the positive relationship between the strength of independent directors' political connection and the company's earnings management level has weakened;(3)Compared with state-owned holding companies,the relationship between the independent directors' political connection strength and the company's earnings management level has weakened more significantly in non-state-owned holding companies;(4)Compared with the company whose registered place is in a more market-oriented area,the relationship between the strength of independent directors' political connection and the company's earnings management level has weakened more significantly in companies with weaker marketization.Studies have shown that the strength of independent directors' political affiliation will promote the company's true earnings management activities,and this relationship has weakened since the " Document No.18" was issued.Although the release of the policy has led to the departure of a large number of independent directors of political associations,to a certain extent,it has inhibited the occurrence of true earnings management activities of the company and improved the quality of the company's accounting information.The weakening of the correlation between independent directors' political connection strength and the company's true earnings management level is even more pronounced in non-state holding companies.Due to the lack of a natural political connection with the government,the impact of the policy on non-state holding companies is greater,and the effect of the policy is more obvious.The weakening of the correlation between the independent directors' political connection strength and the company's true earnings management level is even more pronounced in companies with a weaker marketization in the place of registration.In areas with less marketization,the government is more involved in the operation of the market economy.After losing some political connections with the government,the impact on the company is greater and the policy effect is more obvious.
Keywords/Search Tags:political connection, independent directors, earnings management
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