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Political stability, political rights and earnings management: some international evidence

Author

Listed:
  • Tesfaye Taddese Lemma
  • Ayalew Lulseged
  • Mthokozisi Mlilo
  • Minga Negash

Abstract

Purpose - This study aims to examine the impact of political stability and political rights on firm-level earnings (both accrual-based and real) management. Design/methodology/approach - The authors develop models that link political stability, political rights, and the interplay between the two and earnings (both accrual-based and real) management. The authors analyze 63,872 firm-year observations of publicly listed, non-financial, firms drawn from 39 countries, for the period 1995 to 2016. Findings - The authors find that political stability (political rights) attenuates (accentuates) accrual-based earnings management; political rights (political stability) accentuates (have no effect on) real earnings management; and the association between political rights and real earnings management is more pronounced in countries with better political stability. Practical implications - The findings imply that users of financial statements should take cognizance of a country’s ambient political environment in assessing the potential for earnings management by firms. Originality/value - No prior research examined the role of political forces in shaping firm-level earnings management behavior in a cross-country setting.

Suggested Citation

  • Tesfaye Taddese Lemma & Ayalew Lulseged & Mthokozisi Mlilo & Minga Negash, 2020. "Political stability, political rights and earnings management: some international evidence," Accounting Research Journal, Emerald Group Publishing Limited, vol. 33(1), pages 57-74, January.
    • Handle: RePEc:eme:arjpps:arj-11-2017-0182
    DOI: 10.1108/ARJ-11-2017-0182
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    Citations

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    Cited by:

    1. Wil Martens & Prem W. S. Yapa & Maryam Safari, 2020. "The Impact of Financial Statement Comparability on Earnings Management: Evidence from Frontier Markets," IJFS, MDPI, vol. 8(4), pages 1-25, November.
    2. Wil Martens & Prem Yapa & Maryam Safari, 2021. "Earnings Management in Frontier Market: Do Institutional Settings Matter?," Economies, MDPI, vol. 9(1), pages 1-19, February.

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