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Political elections uncertainty and earnings management: Does firm size really matter?

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  • Gonçalves, Tiago
  • Barros, Victor
  • Serra, Gonçalo

Abstract

This study provides evidence on whether political elections uncertainty is associated with firms’ earnings management in election years in 15 European countries, using a sample of 16,868 firm–year observations from 3,096 unique firms in the period 2011–2018. We find that earnings management increases in uncertain political environments. This occurs mostly in years of extreme elections uncertainty as in the case of elections won by a margin of less than 5%, including close calls with a change of the ruling party to a different political spectrum. Firms increase earnings management activity to decrease earnings except in the case of SMEs who behave conversely by increasing earnings, arguably on the basis of increased scrutiny risk.

Suggested Citation

  • Gonçalves, Tiago & Barros, Victor & Serra, Gonçalo, 2022. "Political elections uncertainty and earnings management: Does firm size really matter?," Economics Letters, Elsevier, vol. 214(C).
    • Handle: RePEc:eee:ecolet:v:214:y:2022:i:c:s0165176522000921
    DOI: 10.1016/j.econlet.2022.110438
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    Cited by:

    1. Zhibing Li & Jia Liu & Jie Liu & Xiaoyu Liu & Yinglun Zhu, 2024. "The causal effect of political risk on the stock market: Evidence from a natural experiment," Australian Economic Papers, Wiley Blackwell, vol. 63(1), pages 145-162, March.
    2. Dominika Gajdosikova & Katarina Valaskova & Pavol Durana, 2022. "Earnings Management and Corporate Performance in the Scope of Firm-Specific Features," JRFM, MDPI, vol. 15(10), pages 1-18, September.

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    More about this item

    Keywords

    Political elections uncertainty; Earnings management; Earnings quality;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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