A study on the effect of government support on the earnings management of public enterprises

Many countries provide government subsidies to public enterprises, and it is possible to assume that the support of these government grants will be subject to profit-making in accordance with the opportunistic behavior of the enterprise or manager. The injection of government subsidies will have a monitoring effect on public enterprises, which may serve as a means to curb profit-fixing behavior for enterprises or managers. Therefore, this paper carries out the verification of whether firm monitoring effects occur in enterprises that have received government subsidies or whether earnings will be managed as strategies to obtain sufficient government subsidies. Studies have shown that public enterprises are making earnings management through discretionary accruals to effectively receive government subsidies, as well as utilizing the situation of information asymmetry to adjust earnings. This is assumed to be frequent opportunistic earnings management by public enterprises to effectively receive subsidies in accordance with the reasonable doubts presented earlier. Therefore, the authorities that provide subsidies to public enterprises are expected to have a more thorough monitoring and post-assessment process when providing subsidies.