Management Accounting Section Midyear Meeting

Politically Motivated Corporate Budgeting

• In Event: Budgeting and Target Setting I

Abstract

We investigate whether and how politician turnovers in China are associated with corporate budgeting processes and outcomes. Using manually collected annual sales budget data and politician turnover data from 2007 to 2017, we find that companies with headquarters located in areas experiencing local politician turnovers are more likely to miss their budgeted sales in the year immediately following the politician turnovers. The increased likelihood of missing sales budgets is attributable to inflated sales targets rather than worsened performance. We further find that budget-inflating firms receive more government subsidies and better access to short-term loan financing, whereas their CEOs do not experience an increase in turnover when these firms miss their budgeted sales. This study provides initial archival evidence on how political factors influence corporate budgeting practices.

Authors

• Xiaotao (Kelvin) Liu, Northeastern University

• Like Jiang, University of Melbourne

• Shi Hanzhong, Nanjing University

• Xin Yang, Nanjing University