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The effect of local political corruption on earnings quality

Review of quantitative finance and accounting, 2019-08, Vol.53 (2), p.551-574 [Peer Reviewed Journal]

Springer Science+Business Media, LLC, part of Springer Nature 2018 ;Review of Quantitative Finance and Accounting is a copyright of Springer, (2018). All Rights Reserved. ;ISSN: 0924-865X ;EISSN: 1573-7179 ;DOI: 10.1007/s11156-018-0758-x

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  • Title:
    The effect of local political corruption on earnings quality
  • Author: Xu, Hongkang ; Dao, Mai ; Wu, Jia
  • Subjects: Accounting/Auditing ; Companies ; Corporate Finance ; Corruption ; Corruption in government ; Earnings ; Earnings management ; Econometrics ; Economics and Finance ; Finance ; Financial reporting ; Local government ; Manipulation ; Operations Research/Decision Theory ; Original Research ; Sales
  • Is Part Of: Review of quantitative finance and accounting, 2019-08, Vol.53 (2), p.551-574
  • Description: Our study examines whether political corruption of a local government at judicial district level influences earnings management activities of firms located in a corrupt area. Prior studies suggest that there is an association between political connections and earnings quality (e.g., Braam et al. in Int J Account 50: 111–141, 2015 ; Harymawan and Nowland in Int J Account Inf Manag 24: 339–356, 2016 ). Nevertheless, there is little research regarding the impact of local political corruption at judicial district level on financial reporting quality. Using a sample of publicly listed U.S. firms from 2007 to 2014, we find that firms located in corrupt regions are more likely to manage earnings through accruals management and real activities manipulation (i.e., sales manipulation and overproduction). An additional analysis indicates that firms located in corrupt regions have less earnings persistence and are more likely to use positive discretionary accruals to meet or beat the consensus analysts’ earnings forecast. Taken together, our study extends prior literature by addressing the concern regarding the influence of local political corruption on firms’ earnings quality.
  • Publisher: New York: Springer US
  • Language: English
  • Identifier: ISSN: 0924-865X
    EISSN: 1573-7179
    DOI: 10.1007/s11156-018-0758-x
  • Source: ProQuest Central
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