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The Influence of Elections on the Accounting Choices of Governmental Entities

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  • NOLAN KIDO
  • REINING PETACCHI
  • JOSEPH WEBER

Abstract

This paper investigates whether gubernatorial elections affect state governments’ accounting choices. We identify two accounts, the compensated absence liability account and the unfunded pension liability account, which provide incumbent gubernatorial candidates with flexibility for manipulation. We find that, in an election year, the liability associated with compensated absences and unfunded pension liabilities are both systematically lower. We also find that the variation in these employment‐related liabilities is correlated with proxies for the incumbent's incentives and ability to manipulate their accounting reports. Jointly, these results suggest that state governments manipulate accounting numbers to present a healthier financial picture in an election year.

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  • Nolan Kido & Reining Petacchi & Joseph Weber, 2012. "The Influence of Elections on the Accounting Choices of Governmental Entities," Journal of Accounting Research, Wiley Blackwell, vol. 50(2), pages 443-476, May.
    • Handle: RePEc:bla:joares:v:50:y:2012:i:2:p:443-476
    DOI: 10.1111/j.1475-679X.2012.00447.x
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    3. Dai, Lili & Ngo, Phong T. H., 2013. "Political Uncertainty and Accounting Conservatism: Evidence from the U.S. Presidential Election Cycle," MPRA Paper 43606, University Library of Munich, Germany.
    4. Johnathon Cziffra & Steve Fortin & Zvi Singer, 2023. "Differences in government accounting conservatism across jurisdictions, their determinants, and consequences: the case of Canada and the United States," Review of Accounting Studies, Springer, vol. 28(2), pages 1035-1073, June.
    5. Gregory S. Miller & Douglas J. Skinner, 2015. "The Evolving Disclosure Landscape: How Changes in Technology, the Media, and Capital Markets Are Affecting Disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 53(2), pages 221-239, May.
    6. Amanda W. Beck, 2018. "Opportunistic financial reporting around municipal bond issues," Review of Accounting Studies, Springer, vol. 23(3), pages 785-826, September.
    7. Lyu, Changjiang & Wang, Kemin & Zhang, Frank & Zhang, Xin, 2018. "GDP management to meet or beat growth targets," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 318-338.
    8. Cheng, Stephanie F. & De Franco, Gus & Lin, Pengkai, 2023. "Marijuana liberalization and public finance: A capital market perspective on the passage of medical use laws," Journal of Accounting and Economics, Elsevier, vol. 75(1).
    9. Dambra, Michael & Even-Tov, Omri & Naughton, James P., 2023. "The economic consequences of GASB financial statement disclosure," Journal of Accounting and Economics, Elsevier, vol. 75(2).
    10. Laurence Van Lent, 2012. "Discussion of The Influence of Elections on the Accounting Choices of Governmental Entities," Journal of Accounting Research, Wiley Blackwell, vol. 50(2), pages 477-494, May.
    11. Baber, William R. & Gore, Angela K. & Rich, Kevin T. & Zhang, Jean X., 2013. "Accounting restatements, governance and municipal debt financing," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 212-227.
    12. Cuny, Christine, 2016. "Voluntary disclosure incentives: Evidence from the municipal bond market," Journal of Accounting and Economics, Elsevier, vol. 62(1), pages 87-102.
    13. Vishal P. Baloria & Kenneth J. Klassen, 2018. "Supporting Tax Policy Change Through Accounting Discretion: Evidence from the 2012 Elections," Management Science, INFORMS, vol. 64(10), pages 4893-4914, October.
    14. Stephanie F. Cheng, 2021. "The Information Externality of Public Firms’ Financial Information in the State‐Bond Secondary Market," Journal of Accounting Research, Wiley Blackwell, vol. 59(2), pages 529-574, May.

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