Political, economic, financial uncertainty, and real earnings management

Authors

Ajeet Jain
Dave Jackson, The University of Texas Rio Grande Valley
Hamid Sakaki, The University of Texas Rio Grande Valley

Document Type

Article

Publication Date

4-2021

Abstract

We examine the relationship between uncertainty (political, economic, and financial) on real earnings management (REM). Covering nine presidential elections in the U.S. from 1980 to 2012, we find that firms limit overproduction in pre-election years followed by reductions in REM activities in election years. We also show that economic and financial uncertainty (FU) stimulate firms’ use of REM through cutting back discretionary expenses such as advertising, research and development, and selling, general, and administrative expenses. We also find that firms with higher agency costs reduce REM during election years whereas larger firms accelerate REM during political, economic policy, and FU.

Comments

© 2021 Wiley Periodicals LLC

https://onlinelibrary.wiley.com/share/UHBSMIXMQPMXUQXSCF4R?target=10.1002/jcaf.22485

Publication Title

Journal of Corporate Accounting & Finance

DOI

10.1002/jcaf.22485

Recommended Citation

Jain, A., Jackson, D. and Sakaki, H., 2021. Political, economic, financial uncertainty, and real earnings management. Journal of Corporate Accounting & Finance, 32(2), pp.52-66. https://doi.org/10.1002/jcaf.22485