The Impact Of The New Environmental Protection Law On Earnings Management Of Heavily Polluted Enterprise

On January 1,2015,the highly anticipated new amendment to the Environmental Protection Law came into effect,adding 23 articles to the original 47,from many aspects showing the unprecedented attention to environmental protection and governance.Because of the particularity of the heavily polluted industry,it is obvious that the industry will be the direct regulated object of the New Environmental Protection Law,and the phenomenon of earnings management motivated by political cost will be more common.So,as the strictest environmental regulation policy in history,what effect will the New Environmental Protection Law have on the earnings management of heavily polluted enterprises?This paper uses the New Environmental Protection Law in 2015 to implement this exogenous event,using a difference-in-differences model,from two aspects of accrual earnings management and real earnings management,the paper empirically tests the influence of political cost on earnings management behavior of heavily polluted enterprises.It is found that after the implementation of the New Environmental Protection Law,heavy polluting enterprises face higher political costs than non-polluting enterprises,and carry out significant upward accruals earnings management behavior and real earnings management behavior,passing on the information of the future development of the enterprise to the outside world.Through a series of robustness tests,the robustness of this research conclusion is proved.Furthermore,it is found that among the three manipulation methods of real earnings management,the heavy pollution enterprises are more inclined to the production manipulation.The real earnings management has no significant effect on the government subsidy,but it has a negative effect on the credit resources.Finally,this paper tests the heterogeneity in four aspects.(1)The analysis based on the scale of enterprises shows that small-scale heavy polluting enterprises prefer to carry out upward earnings management behavior,but there is no significant difference in the real earnings management behavior of different-scale heavy polluting enterprises.(2)Based on the analysis of property rights,the conclusion of this paper is more obvious in the sub-sample group of non-state-owned enterprises.(3)The analysis based on the degree of market competition shows that the enterprises with heavy pollution in the high market competition environment prefer to adopt the upward accrual earnings management;Under the environment of low market competition,enterprises with heavy pollution tend to carry out upward real earnings management.(4)The analysis based on the level of economic development shows that the heavily polluted enterprises in the east tend to adopt the upward accrual earnings management and the real earnings management.The main contributions of this paper are as follows: firstly,it is of theoretical and practical significance to study the effect of macroeconomic policy on the micro-earnings management from the perspective of the New Environmental Protection Law.Second,based on the hypothesis of political cost,this paper empirically examines how the New Environmental Protection Law affects the earnings management behavior of heterogeneous firms in the context of rising political costs,it enriches the research results of enterprise earnings management and expands the literature on the relationship between environmental regulation and enterprise earnings management.Thirdly,this paper evaluates the policy effect of the New Environmental Protection Law through the change of enterprises' micro-level earnings management behavior,which provides a decision-making reference for policy makers and regulators to design relevant systems and further strengthen the environmental regulation effect of the New Environmental Protection Law.