The relationship between Political Connections and Real and Artificial Earnings Management

In addition to accounting standards, financial statements prepared by an entity, are affected by a variety of factors. One of the important and remarkable factors is political influence of managers and owners of enterprise in political circles and their relationships with centers of political power. Political relationships not only affect the financial condition of enterprises, but also affects the motivations of managers about financial reporting and preparation of financial statements. The purpose of this research is to investigate the relationship between political relationships and real and artificial modified earningsmanagement. In order to, this research used five index included: stock market value, book value of assets, number of employees, export sales and insurance payments for measuring political relationships based on Faccio (2006) study. Also, it was used two criteria included discretionary accruals based on Jones modifiedmodel by Dechow et al (1995) and current accruals adjusted performance (REDCA) based on Ashbaugh et al (2003) for measuring artificial earning management. In order to achieve goal research, 130 company listed in Tehran Stock Exchange during the 2009 to 2013 years were selected. The results show that there is a negative and significant relationship between number of employees and artificial earnings management and there is a positive and significant relationship between number of employees and real earnings management.  also there is not relationship between other political connections measures and real and artificial earningsmanagement. This finding suggest that political connections associated with real and artificial earningsmanagement does not play an important role in Iran Stock Exchange and it is considered as a completely ineffective mechanism.