Political, economic, financial uncertainty, and real earnings management. Issue 2 (15th January 2021)

• Record Type: Journal Article
• Authors: Jain, Ajeet; Jackson, Dave; Sakaki, Hamid
• Is Part Of: Journal of corporate accounting & finance. Volume 32:Issue 2(2021)
• Page Start: 52
• Page End: 66
• Publication Date: 2021-01-15
• Subjects: economic policy uncertainty -- financial uncertainty -- political uncertainty -- real earnings management; Accounting -- Periodicals; Accounting -- Law and legislation -- United States -- Periodicals; Corporations -- United States -- Finance -- Periodicals; Corporations -- United States -- Accounting -- Periodicals; 657
• DOI: 10.1002/jcaf.22485
• Languages: English
• ISSNs: 1044-8136

Abstract

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.