A large body of literature examines the effects of executives’ political connections on firm performance (Faccio, 2006; Fan, Wong, & Zhang, 2007; Li, Meng, Wang, & Zhou, 2008; Su & Fung, 2013), but the results are inconclusive. For example, Faccio (2006) utilizes event study methodology and shows a significant increase in firm value when top executives and large shareholders become politicians. In contrast, Fan et al. (2007) find that recently privatized firms with politically connected chairmen or CEOs have inferior performance in the three-year post-IPO period. It is not surprising to find mixed or even contradictory evidence, as the research settings in these studies differ, and such connections have been examined in both mature and emerging economies. It is worth noting that most of the extant studies are based on publicly listed companies even though privately held firms (i.e., those that are not traded on public stock exchanges) serve as an important engine for economic growth and job creation in both developed and developing countries (Allen, Qian, & Qian, 2005; Morck, Stangeland, & Yeung, 1998).1 While there is an emerging stream of literature exploring the role of political connection in private firms (e.g., Ball & Shivakumar, 2005; Burgstahler, Hail, & Leuz, 2006; Chaney, Faccio, & Parsley, 2011), evidence concerning the role political connection/affiliation plays in privately held firms remains far from conclusive. More recently, the effect of political connections on fi- nancial reporting quality has received much attention (Chaney et al., 2011; Leuz & Oberholzer-Gee, 2006). It is crucial to examine how political connections affect accounting quality, as stakeholders rely on corporate disclosure to improve their decision-making quality. The present study examines the relationships between political affiliation and firm performance and real earnings management, and it seeks to uncover the mechanism underlying such relationships in the setting of privately held firms in China.2 As indicated by Berkman, Cole, and Fu (2010), a firm’s political influences may be rooted in the nature of its ownership structure and in the background of its executives; the former refers to government ownership, and the latter refers to the political connections arising from executives’ prior or current working experience.