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Earnings Management and Antitrust Investigations: Political Costs Over Business Cycles

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  • Stephen D. Makar
  • Pervaiz Alam

Abstract

This paper examines evidence of earnings management pertaining to regulatory‐imposed wealth transfers (i.e., political costs) over business cycles. The sample consists of firms subject to merger‐related antitrust investigation under Section 7 of the Clayton Act. Industrial organization literature, together with the political cost hypothesis, suggests that these firms’ earnings management incentives may vary over national business cycles. Our results indicate that investigated firms do indeed choose income‐decreasing discretionary accruals during expansions but not during recessions, in order to reduce the political costs associated with Clayton Act cases.

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  • Stephen D. Makar & Pervaiz Alam, 1998. "Earnings Management and Antitrust Investigations: Political Costs Over Business Cycles," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5‐6), pages 701-720, June.
    • Handle: RePEc:bla:jbfnac:v:25:y:1998:i:5-6:p:701-720
    DOI: 10.1111/1468-5957.00208
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    Cited by:

    1. Hervé Stolowy & Gaetan Breton, 2000. "A Framework for the Classification of Accounts Manipulations," Working Papers hal-00597249, HAL.
    2. Yves Mard, 2005. "Vers Une Information Comptable Plus Transparente : L'Apport Des Recherches Portant Sur La Gestion Des Résultats Comptables," Post-Print halshs-00581229, HAL.
    3. Christopher Bleibtreu & Roland Königsgruber & Thomas Lanzi, 2022. "Financial reporting and corporate political connections: An analytical model of interactions," Post-Print hal-03957978, HAL.
    4. Roland Königsgruber, 2013. "Expertise-based lobbying and accounting regulation," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(4), pages 1009-1025, November.
    5. Othman, Hakim Ben & Zeghal, Daniel, 2006. "A study of earnings-management motives in the Anglo-American and Euro-Continental accounting models: The Canadian and French cases," The International Journal of Accounting, Elsevier, vol. 41(4), pages 406-435, 012.
    6. Roland Königsgruber & David Windisch, 2014. "Does European Union policy making explain accounting choices? An empirical analysis of the effects of investigations by the Directorate General for Competition on accounting choices," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(3), pages 717-731, August.
    7. Yang, Mian & Tang, Wenliang, 2022. "Air pollution, political costs, and earnings management," Emerging Markets Review, Elsevier, vol. 51(PA).
    8. Gill-de-Albornoz, Belen & Illueca, Manuel, 2005. "Earnings management under price regulation: Empirical evidence from the Spanish electricity industry," Energy Economics, Elsevier, vol. 27(2), pages 279-304, March.

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