Research On The Relationship Between Equity Pledge And Earnings Management In Private Enterprises

In recent years,the equity pledges are increasingly used in the capital market,becoming the preferred financing tool for many companies,especially the private enterprises.Rely on its financing advantages,the pledges bring convenience to the financing of enterprises,but also with some not inconsiderable risks.With the higher and higher proportion of pledges in the capital market,we must pay close attention to the risks brought by equity pledges.Private enterprises obtain funds through equity pledges,and at the same time,the fluctuation of equity value will bring the risk of transferring controlling interests.Therefore,the equity pledge will induce corporate earnings management motives,and political connection will affect the private companies’ financing motives,which in turn affects the relationship between equity pledge and earnings management.The paper takes the private enterprises listed on the A-shares from 2011 to 2015 as a sample to study the relationship between equity pledge and earnings management of listed companies in the previous year and the year of the equity pledge.It adopts the methods of accrued earnings management and real earnings management to discuss the earnings management preferences of pledged enterprises in the pledge activities.It also studies the adjustment of the political connection based on mitigating the motivation of financing constraints on the relationship between corporate equity pledge and earnings management,and further explores the differences in the regulatory role of different political connections.The study finds that private enterprises use two methods of earnings management in the previous year to equity pledge,and the higher the proportion of equity pledges,the greater degree of accrued earnings management and real earnings management.In the year to equity pledge,the companies use real earnings management without accrued earnings management.The higher the proportion of pledged equity,the greater the degree of real earnings management,indicating that companies have the preference for earnings management preferences in equity pledge activities.Political connection can ease corporate financing constraints,which could impair the positive relationship between equity pledges and real earnings management in the year of pledge.Compared with representative political connection,political connection of government officials can weaken the positive relationship between equity pledges and real earnings management.Compared with central political connection,local political connection can even weaken the positive relationship between equity pledges and real earnings management.