EARNINGS MANAGEMENT AND POLITICAL CONNECTION: A SYSTEMATIC LITERATURE REVIEW

Abstract

This paper aims to perform a systematic review of prior literature, with the focus being on earnings management and the influence of political connection towards this practice. This systematic review was made on a total of twenty-five (25) journals that firstly has a clear definition of political connection, and secondly has studied earnings management in politically connected companies. There have been multiple definitions of political connection, whereby the most common proxy is if any of the company’s board of directors is or was a Member of Parliament, or is or was holding any Minister position, or is closely related to any politician or political party. Furthermore, this systematic review will display the mixed results from prior literature, in which some studies showed a positive influence of political connection on earnings management, and on the other hand, overall more studies showed a negative impact of political connection on earnings management.