The Effect Of Political Cost On Real Earnings Management Of China’s Listed Electric Power Companies

Because of China’s special political system and the characteristics of our economy,China’s enterprises are under political pressure and are sensitive to political changes,especially some special industries,such as electric power industry which are important to people’s well-being.With the promulgation of the new accounting standards and the enactment of SOX,many scholars have found that the enterprise’s earnings management is gradually turning from accrual earnings management into real earnings management.This paper discusses the influence of political cost on real earnings management of listed electric power companies.Based on the research achievements,this paper reviews the development process of political cost theory,analyzes the reasons why companies change from the accrual earnings management to real earnings management,sort out the means and economic consequences of real earnings management.This paper analyzes the differences between earnings management motivation of listed companies at home and abroad,expounds that the main motivation of earnings management of listed companies in China is political cost motivation,and analyzes the mechanism that how the political cost affects real earnings management in China’s electric power listed companiesSelected all the listed companies of the electric power industry from 2011 to 2015 on Shanghai and Shenzhen Stock Exchange as research samples,this paper puts forward two hypothesis and carries out empirical tests.The empirical results show that more than 70% of the enterprises in the industry apply downward real earnings management;The enterprises’ scale is larger,the political cost faced is larger.Enterprises will have stronger motivation to increase abnormal operating cash flow and operating expenses,reduce the abnormal production costs,carry out downward real earnings management.Even so,in state-owned enterprises,the lager the scale of the enterprises is,the higher political cost they face,the stronger motivation for negative real earnings management.Finally,on the basis of the conclusion obtained from the anlysis above,this paper puts forward some corresponding countermeasures and suggestions.