Politically-connected firms hide corruption through covert earnings manipulation
Politically-connected firms are more likely to use real earnings management instead of accrual-based methods to manipulate their financial results. This is because real earnings management is harder to detect and can hide political favors. When there is more public oversight, these firms are even more likely to use real earnings management. This shows that political connections influence how companies manage their earnings, and just looking at accrual-based methods may not show the full picture of their financial manipulation.