Benefits of downward earnings management and political connection

evidence from government subsidy and market pricing

Haiyan Jiang*, Yuanyuan Hu, Honghui Zhang, Donghua Zhou

*Corresponding author for this work

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

This paper examines the role of downward earnings management and political connection on the receipt of government subsidies and market pricing of subsidies. Using subsidies data hand-collected from Chinese listed firms over the period 2004–2014, the results show a significantly positive association between downward earnings management and the receipt of government subsidies. The results also reveal that a firm's political connection is conducive to securing subsidies for poor performers, but not for good performers. Market pricing analyses demonstrate that share markets value subsidies positively in general, but the effect is ameliorated in firms conducting downward earnings management. No discernible difference is found between the market pricing of subsidies received by firms with political connections and those without.

Original languageEnglish
Pages (from-to)255-273
Number of pages19
JournalThe International Journal of Accounting
Volume53
Issue number4
DOIs
Publication statusPublished - Dec 2018
Externally publishedYes

Keywords

  • China
  • Earnings management
  • Government subsidy
  • Market pricing
  • Political connection

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