Political connections, government ownership, and earnings management: evidence from Jordan

Political connections have an essential role in the earnings management strategy. Political connections can influence earnings management practices. The research aimed to analyze the effect of politics and family ownership on earnings management practices. The sample is 92 manufacturing companies listed on the Indonesia Stock Exchange for the period 2016-2019. Methods of data using a purposive sampling method. Multiple linear regression is an analytical tool used to test the hypothesis. The results show that political connections influence profits. The company pays more attention to the company’s reputation and maintains the privileges of the political relationship that has existed between the company and the government. Family ownership affects earnings management. Family ownership has control rights that can be used to influence management in company profits. The novelty of this research is that political connections can influence earnings management.

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Proposing a model for limiting earning management practices: The case of Jordanian listed firms

Corporate Board role duties and composition ◽

10.22495/cbv12i3art9 ◽

2016 ◽

Vol 12 (3) ◽

pp. 81-84 ◽

Cited By ~ 1

Author(s):

Dea’a Al-Deen Omar Al-Sraheen ◽

Khalid Alkhatib

Keyword(s):

Earnings Management ◽

Management Practices ◽

Political Influence ◽

Earning Management ◽

Political Connections ◽

Ceo Duality ◽

Listed Firms ◽

Independent Variables ◽

The Board Of Directors ◽

Do So

The key objective of this paper is to propose a model for limiting earning management practices among manufacturing firms in Jordan. In order to do so, two independent variables are examined in this paper, namely, political influence and CEO Duality. Discretionary total accruals according to the modified Jones model (1991) was used in order to estimate the level of earnings management, which is the dependent variable. The sample comprised 64 companies for the financial year 2013. The results suggest that a positive and significant association existed among both political influence and CEO duality and earning management. This means that both independent variables exacerbated earnings management. Further research is required to determine what urgent legislation should be developed to restrict the presence of members who have political connections on the board of directors. Also, the need exists for the separation of roles of Chairman and CEO to ensure the independence and complying with the requirements of corporate governance.

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PENGARUH LEVERAGE, MANAJEMEN LABA, DAN STRUKTUR KEPEMILIKAN TERHADAP NILAI PERUSAHAAN PADA PERUSAHAAN BUMN YANG TERDAFTAR DI BURSA EFEK INDONESIA PERIODE 2008 - 2012

Jurnal Akuntansi ◽

10.24964/ja.v1i2.15 ◽

2016 ◽

Vol 1 (2) ◽

Cited By ~ 1

Author(s):

Fajar Kusworo

Keyword(s):

Earnings Management ◽

Ownership Structure ◽

Firm Value ◽

Stock Exchange ◽

Linear Regression Analysis ◽

Significant Positive Effect ◽

Public Ownership ◽

Government Ownership ◽

Simultaneous Testing ◽

Positive Effect

The purpose of this research was to determine the effect of leverage , earnings management , and ownership structure on firm value in state-owned companies . Based on a population of 18 state-owned companies listed on the Stock Exchange was taken 10 stateowned companies in 2008 to 2012 as the samples in this study according to the criteria of the study , a total of 50 years as a firm observational data . At the stage of data processing are affected data outliers firm by 2 years so the number of samples used in this study for 5 years amounted to 48 firm year . Data analysis was performed using linear regression analysis using SPSS for Windows 16.00. Simultaneous testing results show that leverage , earnings management , government ownership , and public ownership and a significant positive effect on firm value . Result partial test indicates that earnings management does not affect the value of the company , while leverage , government ownership , and public ownership negatively affect the value of the company .

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VC political connections and IPO earnings management

Emerging Markets Review ◽

10.1016/j.ememar.2018.02.005 ◽

2018 ◽

Vol 35 ◽

pp. 148-163 ◽

Cited By ~ 5

Author(s):

Qing (Sophie) Wang ◽

Hamish Anderson ◽

Jing Chi

Keyword(s):

Earnings Management ◽

Political Connections

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Investor perceptions of the benefits of political connections

International Journal of Managerial Finance ◽

10.1108/ijmf-08-2012-0093 ◽

2014 ◽

Vol 10 (3) ◽

pp. 312-331 ◽

Cited By ~ 1

Author(s):

Fan Yang ◽

Craig Wilson ◽

Zhenyu Wu

Keyword(s):

Foreign Currency ◽

State Ownership ◽

Policy Implications ◽

Political Connections ◽

Short Sales ◽

Government Ownership ◽

Chinese Firms ◽

Content Type ◽

A Share

Purpose – The purpose of this paper is to investigate how foreign and domestic investors differ in their beliefs about the relative merits of a firm's political connections. Design/methodology/approach – These differences are employed to explain cross-sectional variation in the previously documented premium in A-share prices relative to otherwise equivalent foreign currency denominated B-shares for Chinese firms. Findings – Chinese domestic individual investors were excluded from owning B-shares of Chinese firms prior to February 20, 2001. The authors find that firms with more political connections have higher premiums and a smaller reduction in premiums associated with this event. Research limitations/implications – This is consistent with domestic block holders deriving additional benefits from politically connected firms. Practical implications – The findings also have important policy implications by showing that government can have a strong effect on the economy even without applying macro-policy tools. Social implications – Government ownership in listed companies can result in discrepancies among classes of investors with respect to their valuations. Furthermore, the prohibition of short sales prevents arbitrage from correcting this bias, and eventually the role of the market in allocating resources efficiently is undermined. Originality/value – The authors investigate the role of political connections as implied by the proportion of state ownership in explaining the A-share premium. Unlike previous studies that associate state ownership with political risk, the paper relates state ownership to political connections that are particularly beneficial to domestic large block shareholders. This interpretation is consistent with the findings and with previous literature on state ownership and political connections of Chinese firms.

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Firm borrowing capacity, government ownership and real earnings management

International Journal of Public Sector Management ◽

10.1108/ijpsm-01-2019-0029 ◽

2019 ◽

Vol 33 (2/3) ◽

pp. 339-362

Author(s):

Mouna Ben Rejeb Attia

Keyword(s):

Public Sector ◽

Earnings Management ◽

Information Quality ◽

Simultaneous Equation ◽

Real Earnings Management ◽

Government Ownership ◽

Content Type ◽

Financing Decisions ◽

Research Stream ◽

The Relationship

Purpose The purpose of this paper is to examine borrowing capacity (BC) of government-owned firms and whether real earnings management (REM) activities moderate the sensitivity of firm BC to government ownership. Design/methodology/approach A simultaneous equation analysis is applied to study 210 Tunisian non-financial firms over the 2001–2014 period. Findings The empirical results provide substantial evidence indicating that government-owned firms have higher BC and significant REM than other firms; the relationship between government ownership and firm BC is partially moderated by REM activities. Practical implications The findings imply that the implicit credit guarantee of government is not necessarily the unique determinant of firm BC and highlight the role of lenders in monitoring discretionary real transactions in government-owned and protected firms. These implications should be taken in to account by public sector policy makers. In particular, the findings predict that the current government accounting reform in Tunisia on the basis of IPSAS will, probably, improve information quality, but it is still insufficient to control real activities in public institutions. Originality/value This study extends a growing research stream on the relationship between BC and government ownership by focusing on the moderating effect of REM on this relationship and by considering the endogeneity issue. The findings provide evidence that government-owned firms use REM practices to improve their BC. Examining these practices in developing countries provides an opportunity to evaluate the efficiency of their public sector reforms and their effect on a firm’s performance and financing decisions.

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The effect of political connections on firm performance: evidence from Egypt

Asian Review of Accounting ◽

10.1108/ara-05-2020-0064 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Aref M. Eissa ◽

Yasser Eliwa

Keyword(s):

Pearson Correlation ◽

Market Value ◽

Least Square ◽

Political Connections ◽

Government Ownership ◽

Potential Conflict ◽

Content Type ◽

Listed Firms ◽

Ordinary Least Square ◽

Positive Effect

PurposeThis paper examines the effect of political connections (PCs) on firms' profitability and market value in the Egyptian market after the uprising of 2013.Design/methodology/approachAn empirical study is conducted based on 284 firm-year observations for non-financial listed firms on the EGX100 during the period of 2014–2017. To test the study’s hypothesis, two independent sample t-test, Pearson correlation analysis and ordinary least square (OLS) regressions are conducted.FindingsThe results suggest that PCs are common across all industries in Egypt, the PCs through top officers do not improve firm's profitability; however, it has a positive effect on firms' market value. Further, PCs through business owners improve neither profitability nor the market value. Finally, the results suggest that PCs through government ownership have a positive effect on both firms' profitability and market value.Practical implicationsThe study’s finding encourages policymakers and regulators in emerging markets, e.g. Egypt, to develop stricter laws, policies and regulatory initiatives to restrain the potential conflict of interest in the politically connected firms.Originality/valueTo the best of the authors' knowledge, this study is one of the first to examine the relationship between PCs and both firms’ profitability and market value in Egypt.

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A review of the influence of political connections on management’s decision in non-US settings

Journal of Financial Reporting and Accounting ◽

10.1108/jfra-03-2020-0075 ◽

2020 ◽

Vol 18 (4) ◽

pp. 687-705

Author(s):

Ines Amara ◽

Hichem Khlif

Keyword(s):

Earnings Management ◽

Voluntary Disclosure ◽

Management Practices ◽

Empirical Studies ◽

Tax Avoidance ◽

Economic Effects ◽

Real Earnings Management ◽

Political Connections ◽

Future Research ◽

Content Type

Purpose Given the interest in better understanding the economic effects of political connections, this paper aims to review empirical studies in the accounting and finance domain investigating the effects of firms’ political connections on management’s decision in non-US settings. Design/methodology/approach Key words used to search for relevant studies include “political connections” linked with “tax avoidance,” “earnings quality” “voluntary disclosure.” The authors consult several editorial sources including Elsevier, Electronic Journals Service EBSCO, Emerald, Springer, Palgrave Macmillan, Sage, Taylor & Francis and Wiley-Blackwell. The authors’ search yields 46 published studies since 2006. Findings The review reveals a prevalence of studies conducted in Asia. A narrative synthesis of empirical findings shows mixed effects of political connections on earnings management, as measured by accrual-based or real earnings management practices. Mixed evidence also exists for the association between political connections and reporting policy (e.g. corporate social responsibility reporting). The review also reveals that firms with political ties adopt an aggressive tax policy aimed at reducing effective tax rates and are more likely to choose a Big 4 auditor. Originality/value The review discusses the political connections literature focusing on studies outside of the USA and the effect of such connections on decision-making by management. It identifies some limitations of this literature and offers guidance for future research avenues. The synthesis suggests that political connections can adversely or beneficially impact management’s decisions depending on the legal, institutional and cultural characteristics prevailing in a particular setting.

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