Financial Distress, Political Affiliation, and Earnings Management: The Case of Politically-Affiliated Private Firms

The European Journal of Finance, Forthcoming

39 Pages Posted: 25 Jan 2017

See all articles by Gady Jacoby

Gady Jacoby

University of Manitoba - Department of Accounting and Finance; Seton Hall University

Jialong Li

University of Manitoba - Asper School of Business

Mingzhi Liu

University of Manitoba - Asper School of Business

Date Written: August 1, 2016

Abstract

Using a sample of politically-affiliated private firms in China, we explore the relation between corporate financial distress and earnings management. We further examine the joint moderating effects of political affiliation and regional development on this relation. The findings suggest that financially-distressed firms engage more in reporting small positive earnings relative to financially-healthy firms. In addition, political affiliation weakens the association between financial distress and small positive earnings management. A three-way interaction analysis indicates that the moderating effect of political affiliation is influenced by regional development.

Keywords: Financial Distress, Earnings Management, Political Affiliation, Economic Imbalance

Suggested Citation

Jacoby, Gady and Li, Jialong and Liu, Mingzhi, Financial Distress, Political Affiliation, and Earnings Management: The Case of Politically-Affiliated Private Firms (August 1, 2016). The European Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2903816

Gady Jacoby

University of Manitoba - Department of Accounting and Finance

Faculty of Management
Winnipeg, MB R3T 5V4
Canada

Seton Hall University ( email )

400 S Orange Avenue
South Orange, NJ 07079
United States

Jialong Li

University of Manitoba - Asper School of Business ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada

Mingzhi Liu (Contact Author)

University of Manitoba - Asper School of Business ( email )

460-181 Freedman Crescent
Winnipeg, Manitoba R3T 5V5
Canada
204-474-6847 (Phone)

HOME PAGE: http://umanitoba.ca/faculties/management/faculty_staff/academic_professors/mingzhi-liu.html

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