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Earnings Management Around Zero: A motivation to local politician signalling competence

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  • Augusta Ferreira
  • João Carvalho
  • Fátima Pinho

Abstract

Literature earnings management aims to determine what causes/motivates managers to disclose earnings close to zero and to use this as an instrument to influence users' decisions. However, limited research has been carried out on this subject in the public sector. Therefore, the main purpose of this paper is to evaluate whether local politicians (in Portuguese municipalities), aiming to demonstrate their high level of competence and skills, engage in earnings management in such a way as to ensure that earnings are positive but close to zero. We examined whether political competition is a determining factor of earnings management close to zero and if managers use discretionary accruals in order to do this. Results indicate that, in order to report positive net earnings close to zero, discretionary accruals are used. This study identified the overriding tendency to avoid the reporting of losses in those municipalities where political competition is greatest.

Suggested Citation

  • Augusta Ferreira & João Carvalho & Fátima Pinho, 2013. "Earnings Management Around Zero: A motivation to local politician signalling competence," Public Management Review, Taylor & Francis Journals, vol. 15(5), pages 657-686, June.
    • Handle: RePEc:taf:pubmgr:v:15:y:2013:i:5:p:657-686
    DOI: 10.1080/14719037.2012.707679
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    Cited by:

    1. Maria Jose Arcas & Caridad Martí, 2016. "Financial Performance Adjustment in English Local Governments," Australian Accounting Review, CPA Australia, vol. 26(2), pages 141-152, June.
    2. Fang Fang & Danglun Luo & Yuexin Huang & Xin Cao, 2024. "How does regional GDP manipulation affect livelihood investment?," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-11, December.
    3. Rakhman, Fuad & Wijayana, Singgih, 2024. "Human development and the quality of financial reporting among the local governments in Indonesia," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 56(C).
    4. Korthals Altes, Willem K., 2024. "Valuing public land in land policy: The role of accountancy regulations," Land Use Policy, Elsevier, vol. 144(C).
    5. Pierre Donatella & Torbjörn Tagesson, 2021. "CFO characteristics and opportunistic accounting choice in public sector organizations," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(2), pages 509-534, June.
    6. Vladan Pavlovic & Goranka Knezevic & Radica Bojicic, 2022. "The Impact of Gender and Age on Earnings Management Practices of Public Enterprises – A Case Study of Belgrade," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 130-148.
    7. Stefano de Nichilo, 2024. "Creative accounting in Italian public finance: Audit governance and accounting methodology," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2024(1), pages 15-36.
    8. Anessi-Pessina, Eugenio & Steccolini, Ileana, 2024. "Do conformity and bailouts affect misreporting? The case of public health-care organisations," The British Accounting Review, Elsevier, vol. 56(3).
    9. Grzegorz Bucior & Aleksandra Zurawik, 2022. "The Autonomy of Public Sector Units in the Process of Formulating Accounting Policy – Evidence from Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 555-581.
    10. 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.
    11. Xin Yao Li & Pei-Wen Chen, 2020. "Meeting Dividend Thresholds Through Earnings Management of Listed Companies in South Africa," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 10(6), pages 1-5.
    12. Francesco Capalbo & Claudio Lupi & Margherita Smarra & Marco Sorrentino, 2021. "Elections and earnings management: evidence from municipally-owned entities," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(3), pages 707-730, September.
    13. Amanda W. Beck, 2018. "Opportunistic financial reporting around municipal bond issues," Review of Accounting Studies, Springer, vol. 23(3), pages 785-826, September.
    14. Li, Xiaoxia & Cai, Guilong & Luo, Danglun, 2020. "GDP distortion and tax avoidance in local SOEs: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 582-598.

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