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Source
The International Journal of Accounting, 50, 2, (2015), pp. 111-141ISSN
Publication type
Article / Letter to editor

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Organization
Business Economics
Financiële economie en ondernemingsfinanciering
Journal title
The International Journal of Accounting
Volume
vol. 50
Issue
iss. 2
Languages used
English (eng)
Page start
p. 111
Page end
p. 141
Subject
Distributional Conflicts in a Globalizing World: Consequences for State-Market-Civil Society Arrangements; Responsible OrganizationAbstract
This study examines whether the trade-off between real and accrual-based management strategies differs between firms with and without political connections. We argue that politically connected firms are more likely to substitute real earnings management for accrual-based earnings management than non-connected firms. Although real earnings management is more costly, we expect that politically connected firms prefer this strategy because of its higher secrecy and potential to mask political favors. Using a unique panel data set of 5493 publicly traded firms in 30 countries, our results show that politically connected firms are more likely to substitute real earnings management strategies for accrual-based earnings management strategies than non-connected firms. We also find 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. Our finding that political connections play a significant role in the choice between accrual-based and real earnings management strategies suggests that focusing only on accrual-based measurements underestimates the total earnings management activities of politically connected firms.
This item appears in the following Collection(s)
- Academic publications [188958]
- Electronic publications [87974]
- Nijmegen School of Management [11905]
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