Premium
Political embeddedness and firms’ choices of earnings management strategies in China
Author(s) -
Wang Zhi,
Braam Geert,
Reimsbach Daniel,
Wang Jiaxin
Publication year - 2020
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12690
Subject(s) - earnings management , accrual , embeddedness , china , business , earnings , politics , quality (philosophy) , affect (linguistics) , government (linguistics) , state ownership , accounting , emerging markets , finance , philosophy , linguistics , epistemology , sociology , anthropology , political science , law
We examine whether and how political embeddedness influences financial reporting quality in China by investigating how government ownership and political connections affect Chinese listed firms’ choices of earnings management strategies. The results show that state‐owned enterprises (SOEs), and in particular, central SOEs, are more likely to substitute accrual‐based earnings management strategies with costlier but less detectable real earnings management strategies than non‐SOEs. The results also indicate that politically connected enterprises (PCEs) are more likely to employ less detectable real earnings management strategies than non‐PCEs, so much so that PCEs’ total earnings management level is higher than that of non‐PCEs.