Political Relevance,Internal Control Qualityand Real Earnings Management

With the deepening of market economy reform,it is imperative for China’s corporate accounting standards and international standards to converge.Many listed companies are in the dilemma of earnings management choices,and there is a general preference for real earnings management with strong hidden advantages.At the same time,based on China’s unique political system and market environment,in order to maintain the government’s "absolute" or "strong" control over important national industries and key areas,state-owned listed companies have been given a "congenitally passive" political connection.Under the blessing of political connections,the high concentration of economic control rights and political discourse power has intensified the motivation of state-owned listed companies to use real earnings management to achieve profit-making purposes.In reality,the imperfection and non-standardization of the design and implementation of the internal control system of Chinese enterprises,combined with the imperfect supervision mechanism of the capital market,led to the chaos of the real surplus management and the disorder of the capital market.There is a deteriorating trend of the state-owned listed companies used the political correlation to manipulate the surplus,which needs further investigation.Based on the background which was given above,in order to explore the relationship between the political connections,the quality of internal control and the real earnings management of state-owned listed companies in more detail strengthen the supervision of capital market and curb the harmful trend of earnings management of state-owned listed companies.This paper selects the state-owned enterprises listed on the Shanghai and Shenzhen A shares from 2011 to 2017 as a research sample,using the two methods of normative and empirical research to analyze the 4,718 observations,explore the intrinsic relationship between these three.The results show that in state-owned listed companies,internal control has a significant inhibitory effect on real earnings management,and the existence of political connections provides an opportunity to manipulate real earnings management,and the correlation between them is also due to the strength and type of political association.Meanwhile,the difference between the quality of internal control and the real earnings management is generally weakened by the phenomenon of political correlation.However,the representative member political association has different conclusions on the regulatory effect of the two.Through the analysis of the above research results,the article considers and proposes relevant suggestions on three levels: government functional departments,state-owned listed companies and market supervisors: First,it is recommended that government functional departments strictly regulate the relationship between government and enterprises,government and capital,consolidate the cornerstones of corporate accounting standards and internal control systems,and strengthen the disclosure and supervision of political related information of state-owned enterprises.Second,State-owned listed companies may focus on optimizing the company’s internal control system,and improve the management incentive and restraint mechanism based on the improvement of corporate governance structure.Third,It is suggested that market strengthen the supervision and management functions of the capital market and continuous regulatory system,introducing public opinion and media supervision to allow the freedom of speech in society and the media.The above proposals are aimed at promoting the improvement of China’s internal control system,weakening the behavioral motives of management’s manipulation of real earnings management,accelerating the construction of modern state-owned enterprise systems with Chinese characteristics and improving the reliability and authenticity of China’s financial information disclosure.