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The Impact of Political Connection on Earnings Management in China’s Private Enterprises

Author

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  • Zhiyuan Liao
  • Weijian Zhang
  • Xiaohui Tao

Abstract

Earnings management behaviour lowers the quality of accounting information of private enterprises to a certain extent. Hence, it is necessary to study the relationship between political connection and earnings management of private enterprises. Through the investigation and statistics of the private companies in China’s Small and Medium-sized Enterprise Board Market from 2013 to 2017, this paper performs empirical analysis to verify the relationship between political connection and earnings management. It shows that political connection can weaken accrual-based earnings management level, which helps private firms obtain more preferential policies and financing help. Based on the above conclusions, this paper puts forward the corresponding policy recommendations, which provide reference for the governance of private enterprises and the capital market.

Suggested Citation

  • Zhiyuan Liao & Weijian Zhang & Xiaohui Tao, 2020. "The Impact of Political Connection on Earnings Management in China’s Private Enterprises," International Business Research, Canadian Center of Science and Education, vol. 13(6), pages 128-128, June.
    • Handle: RePEc:ibn:ibrjnl:v:13:y:2020:i:6:p:128
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    References listed on IDEAS

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    1. Claessens, Stijn & Feijen, Erik & Laeven, Luc, 2008. "Political connections and preferential access to finance: The role of campaign contributions," Journal of Financial Economics, Elsevier, vol. 88(3), pages 554-580, June.
    2. Chaney, Paul K. & Faccio, Mara & Parsley, David, 2011. "The quality of accounting information in politically connected firms," Journal of Accounting and Economics, Elsevier, vol. 51(1-2), pages 58-76, February.
    3. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
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    Cited by:

    1. Ge, Wenxia & Ouyang, Caiyue & Shi, Zhenyang & Chen, Zhanliao, 2022. "Can a not-for-profit minority institutional shareholder make a big difference in corporate governance? A quasi-natural experiment," Journal of Corporate Finance, Elsevier, vol. 72(C).
    2. Yi, Shangkun & Wang, Jian & Wang, Xiaoting & Feng, Hongrui, 2022. "CEO political connection and stock sentiment beta: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).

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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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