What is it about?
Politically-connected firms are more likely to substitute real earnings management strategies for accrual-based earnings management strategies than non-connected firms
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Why is it important?
Using a unique panel data set of 5,493 publicly traded firms in 30 countries, our results show that when public monitoring and therefore the risk of detection increases, politically connected firms are more likely to resort to less detectable real earnings management strategies.
Perspectives
Our findings are likely to be helpful for external capital providers and other stakeholders in assessing the pervasiveness of earnings management and the overall integrity of financial reporting of the connected firms. The finding that politically-connected firms treat real and accrual-based management strategies as substitutes has important implications for research.
Dr Suman Lodh
Middlesex University
Read the Original
This page is a summary of: Accrual-based and real earnings management and political connections, The International Journal of Accounting, June 2015, Elsevier,
DOI: 10.1016/j.intacc.2013.10.009.
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